When the market shifts, it hardly ever happens all at once. That’s because on a microeconomic level, a bunch of decision makers are making small decisions. Successful entrepreneurs spot these small decisions before they become a trend, and react in a profit-centered way. Observers notice that change.
It should surprise no one that Coldplay has rejected freemium on their new “Headful of Dreams” album release and Spotify’s pig headed response should also surprise no one, either.
Complete Music Update asks the question of why Spotify is painting itself into a corner:
Which brings us back to that old question: why doesn’t Spotify allow premiere league artists to window their new releases so that they become available to the service’s paying premium users first, subsequently arriving on freemium several weeks or months down the line? Because ‘A Head Full Of Dreams’, which is already available on premium-only streaming platforms like Apple Music, could be in the ears of all those premium Spotify scamps this very morn if only their stream-provider-of-choice would offer that flexibility.
Surely that would be a good move for Spotify too, as well as the artists who don’t like their brand new musical business being made available to all for free, because it would provide a very compelling reason for the free users to upgrade, ie exactly what Spotify wants/needs them to do. Though presumably Spotify fears opening the floodgates, wondering quite who it is who decides which artists are sufficiently premium to qualify for such windowing. So, it’s all or nothing on the Spotifys, which is why ‘A Head Full Of Dreams’ is absent as of today.
There’s an easy answer to that “who decides” question–the artist should decide. If the artist miscaclulates and thinks themselves more premium than they really are, they’ll move the title to the freemium side. But if the artist thinks that offering their record for free undermines the retail price point (either download, physical or subscription), who is in a better position to know that?
Given the number of failures racked up by Spotify’s “my way or the highway” attempts to command the market like Mr. Ek’s mythical Viking ancestor, one would think this would start to sink in.
There’s actually a good reason from behavioral economics behind the artist’s intuitive decision to reject freemium. When presented with a set of prices, economically rational actors will likely value a fungible good being priced at the lowest price. If the lowest price is free, it’s hard to convince masses of consumers that they should pay any more for the good if there is a “friction free” method of distribution. Also known as ubiquitous streaming. (See Daniel Kahneman and Amos Tversky.)
This is what’s called “anchoring”, the cognitive bias that shows that consumers tend to place a dispositive amount of emphasis on the first piece of information available. Like if that piece of information is “price of Coldplay album”. Once the consumer knows that the price of a Coldplay album is “free”, then it will be difficult for Coldplay to convince consumers to pay more.
If Spotify profits from the “free” transaction, the “anchoring” harm does not affect Spotify because Spotify profits sufficiently from free due to high CPMs relative to royalty payout. The harm is transferred to Coldplay–or any other artist who is distributing through Spotify and anywhere else where the price is not free.
The anchoring effect suggests that the “Spotify fights piracy” argument may also fail to the extent it is offered to support the proposition “Spotify revalues music”. It does–and for the overwhelming majority of Spotify users, that value is zero. Which is fine as long as you only distribute your music on Spotify, but no one does, and fewer want to play the freemium streaming game every day.
What that will mean is that if you offer consumers the same price point as pirate sites with the freemium model, you may have accomplished something by attracting consumers into a monetized environment, but you have accomplished nothing if your goal is to affect consumer behavior to convince consumers of the value of the Coldplay album.
Artists know this and it’s starting to show. We call these “trends.”