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“Rumor Has It” That Spotify May Stop Censoring and Start Segmenting

December 9, 2015

The Wall Street Journal reports that Spotify is considering allowing the market to work so that artists can decide window their music between the Spotify free music service and Spotify’s subscription service.  Naturally, this decision to liberate artists from the bureaucrats in the Spotify Ministry of Culture will be welcome news although it may be limited to superstar artists.

The Journal reports:

In private talks, Spotify has told music executives that it is considering allowing some artists to start releasing albums only to its 20 million-plus subscribers, who pay $10 a month, while withholding the music temporarily from the company’s 80 million free users.

Spotify, initially, will try the new approach as a test, according to a person familiar with the matter. It wants to investigate how such a “windowed” approach might affect usage and subscription sign-ups. It also hasn’t decided which artist will get to withhold music from the free service first, this person said, adding that the company isn’t ready to announce a permanent policy change yet….

“Our free service drives our paid service,” Spotify Chief Executive Daniel Ek wrote in a blog post last year, following Ms. Swift’s decision to remove her music from the service.

The shift is a coup for major record labels that have been lobbying for more flexibility when it comes to releasing albums on Spotify.

There is, of course, a real question as to whether the Spotify free customer and the Spotify subscriber bear much relationship to each other.  I would be interested to see the consumer research that demonstrates a causal relationship between one and the other.  It seems very possible that some Spotify subscribers never used the free service and obviously some free service users are not subscribers.  In fact, Spotify has been around long enough now that it may be possible to say that there are some Spotify free users who will likely never become subscribers.

If you buy into this reasoning, it could follow that being a free user is a sufficient but not necessary condition of being a Spotify subscriber.  Which could mean that for a great many Spotify subscribers, there is no reason to think that free users “convert” to subscribers.  This is the kind of thing that is knowable through…whatchamacalit…consumer research, something that the music business has never done well.

If it were true, you would expect to see higher subscribers with services that don’t offer a choice like say…oh it slips my mind now.  You might also expect to see low subscriber adoption percentages as you do with Spotify.

The mistake might be to think that there is a repeatable causal relationship between users of the free service and the subscription service.  What if there were no “conversion” going on?  What if these were simply two different customers “buying” two different products?

“No conversion” may be too categorical.  What if the number of free users had only a small effect on the number of subscribers?   What if the number of free users had the greatest effect on decreasing sales of downloads or physical?  You don’t think the digital folks might have had their eye on the wrong ball or anything shocking like that, do ya?

Aside from the common sense element, these pricing decisions seem to resonate pretty well with the anchoring and adjustment heuristic of Tversky and Kahneman that measures cognitive bias in consumers.  If you tell consumers that the price of a fungible good is free (and it is free to them on the ad supported services), then anchoring suggests that consumers will probably not wander far from that price point.  If that’s true, offering an album for free would be expected to drive down any offering of the same album at any price point–including sales.

So why would anyone trying to convince consumers of the value of purchasing that album initially offer it to them for free.  (Which of course sort of calls into question the entire Web 2.0 business model, and God knows that’s a third rail in venture capital land.)

This is the essence of the old record club holdbacks which typically were a year from street date (or as long as one could get away with).  We have seen this movie before and we know how it ends.

If Spotify stops censoring and starts embracing windowing, then we will start getting better answers to some of these questions.  All that has to happen is for the Spotify Ministry of Culture to get out of the way of the free market.

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