People like free: It's a good model

When I first saw Spotify, I knew that they’d struck gold. For those who do not know, Spotify is the peer-to-peer music streaming service, which can be used to stream an unlimited amount of tracks from the catalogue for free (with some ads) or at a premium with £0.99 for a one day ad-free pass or £9.99/month which removes ads and offers extra features such as a higher bit-rate.

It came to me with no surprise when I saw this article on The Guardian website this morning:

“In five months from the launch, Spotify became our largest digital source of income and so passed by iTunes”, according to Per Sundin, managing director of Universal Music, the world’s bigget major, in Sweden (via SwedishWire). “It’s a fantastic development, explained by the fact that Spotify really has exploded”.

And it’s also slightly frustrating that record labels have taken such a long time to realise it.

It feels like the record labels have been battling with pirates and others who illegally download or distribute music for an eternity. This was when DRM reared its ugly head in the form of such sytems as FairPlay and OpenMG, and was probably one of the biggest mistakes in the industry, for two simple reasons:

1. It just aggravated the legitimate users, which made stop buying music, in favour of illegal downloads.
2. It didn’t affect those who were already downloading music illegally, or those who were sharing music, so offered no positive gain.

The problem with rights management for something like music is that it is impossible to ever manage it completely, simply due to the nature of the media. Even with iTunes, which uses FairPlay DRM, it was simply possible to burn the tracks to a CD from within iTunes and then re-import them without restrictions. Even for DRM systems that didn’t support this, all you need is a line-in port, a 3.5mm audio cable and a simple piece of recording software and you’re off. Even if all of this could somehow be restricted, there’s nothing stopping you from putting a microphone to your speakers and recording tracks like that. It’s like software, in that it can’t ever be completely protected against malicious users or those who don’t want to play by the rules, and the sooner the record companies realised that, the better.

Major steps came in mid-2007 with the launch of Amazon’s DRM-free music store, along with iTunes Plus, which offered DRM-free music (for a slightly higher price than all the other rights-managed tracks in the iTunes catalogue) from EMI; described by Engadget:

It’s taken so so long but now even (one of) the Big Four realizes that DRM fails to prevent piracy — succeeding only at being an unnecessary nuisance for the vast majority of law abiding consumers.

And it had taken so very long for the record labels to see.

Further steps have been made since then, with the advent of the entire iTunes music catalogue going DRM-free at the beginning of the year. But it still wasn’t perfect: at £0.79 per track and about £7.99 per album, music is still expensive. Really expensive, sometimes for what it’s worth.

Why it works

This is why Spotify is such a great hit. People like free. Part of the reason that people don’t want to pay for music is because when people buy anything there is a commitment to buying it – there is a risk that it’s not what you want and if it isn’t then you’ve just wasted your money, which of course bothers people unless they’re really off-the-wall. Whereas with Spotify, it doesn’t matter whether you like a track or want to listen to it, or regret doing so after because you can, and it doesn’t cost you anything (at least financially anyway).

In other words, there is less of a concrete mindset in playing something on Spotify because you don’t lose anything financially by listening to the music. You just play what you want, whenever you want. Sure, there are a few ads interspersed between but it’s free. Free in the monetary sense and free from limitations.

And guess what? This is actually good for the record companies, because they get a greater reach, which means more money. So, in short, everyone’s a winner:

1. Users get good-quality, free, fast streaming of legal content.
2. Record companies have fewer people downloading illegal content, and make more money from legal content.
3. Spotify obtains a large number of users and makes money from ads and premium services.

But the biggest win is in the music industry, in finally realising that DRM doesn’t work.