Inside: Spotify

I can still remember when I first began noticing Spotify back in 2012. Perhaps I was a little late in the game, but I didn’t start paying attention until my Facebook feed became filled with “[Insert friend’s name] listened to [insert track]on Spotify”. At first I found this mildly annoying thinking “What the hell is Spotify” while simultaneously feeling shocked to discover some of the crap my friends were listening to. But soon enough I found myself on the platform, figuring out what it was all about, running to my computer like most early users to turn down the blaring ads and like most other early users I was pretty adamant I wouldn’t be paying for it. But things change and New Zealand has embraced the service with open arms as one of the highest growing streaming markets in the world. We had the rare opportunity to have a chat with Spotify about how it’s doing in New Zealand, its branding partnerships, New Zealand’s piracy problem, the threat of Apple Music and more.

“New Zealand is a very important market to us,” Spotify Australia and New Zealand managing director Kate Vale says. “We do really well in New Zealand and have a telco [Spark] that has helped us enormously. Streaming is really taking off in New Zealand.”

And the numbers seem to support this claim. New Zealand has seen a 196 percent growth in subscription streaming revenues over the past year, according to IFPI, which is one of the highest growth rates globally. To compare, the US grew by 58.4 percent and the UK by 33.5 percent. Further, music revenue has grown in New Zealand from $23 million in 2013 to $26.3 million last year.

Source: Music Ally

Source: Music Ally

Spotify has a high take up of premium subscriptions in New Zealand, she says. “The average conversion rate sits at about 25 percent but in New Zealand we are sitting at a low 30 percent. This means we have a huge audience and it’s a great opportunity for brands to target passionate music lovers in an engaged manner.”

At a Spotify event StopPress attended a couple of weeks back we were shown some interesting information about Spotify users in New Zealand and the New Zealand music industry in general. Most users (31 percent) in New Zealand are between the ages of 18-24 with the 35-44 age bracket the lowest demographic of listeners (14 percent). While there is a pretty even divide of male to female listeners, New Zealand has slightly more male listeners at 52 percent while 48 percent of New Zealand users are women. Fifty percent of users use the service on their mobiles, and the other fifty percent on their computers.

Money from the NZ music market is also divided almost equally from physical, downloads, streaming, live and broadcast.

According to Music Ally revenue from ad-supported spending climbed from US$1.27 million in 2013 to US$1.98 million in 2014 and download sales, while in decline, remain relatively robust. In 2014 7.2 million digital tracks were sold in New Zealand, down from 9.2 million the previous year, as well as 0.9 digital albums, down from 1.0 million in 2013.

Overall digital music revenue in New Zealand climbed from US$23.0 million in 2013 to US$26.3 million last year according to IFPI figures, making up half of total recorded music income for the first time in New Zealand’s history. Physical music declined from US$22.4 million to US$17.7 million in 2014, according to Music Ally.

Overall recorded music revenues in New Zealand fell 1.4 percent year-on-year in 2014 to US$52.1 million, according to the IFPI (-8.1 percent in 2010, -8.3 percent in 2011, -2.0 percent in 2012, and -10.2 percent in 2013).

Despite New Zealand’s swift uptake of streaming services, Vale says Spotify still has major problems with piracy in New Zealand. “New Zealand is one of the highest pirating nations in the world, but since the introduction of legal services I would say there has been a significant decrease in piracy. The amount of New Zealanders that have chosen to come to a free legal service in New Zealand and the fact that you’re getting a legal service, people feel better about it … It’s a great free alternative to piracy.”

On that note Spotify has made it pretty easy to access its service for free instead of reverting to piracy, if one was already using or prepared to make the switch to Spark. Most New Zealanders are probably familiar with the relationship between Spotify and the telco which Vale says is a valuable one. “They [telcos]are absolutely important to our business and Spark is a fantastic partner and one of our better telco partners around the world … And Spark was reinvigorating its brand and music was a key thing it wanted to give out to its audience, they wanted to appeal to more of a millennial audience.”

She says Spotify seems to have a larger uptake in countries where there is a high profile of mobile subscriptions like New Zealand. “Broadband [subscription]is also high [here].”

“Piracy is [still]what we see as our major competition”, she says. “I would like to think that Spotify has made a difference to New Zealand since we have launched but there is definitely a lot of competition as well and in New Zealand it’s one of the most crowded streaming markets in the world and I think we are way ahead of our competition.”

But another threat to Spotify at the moment appears to be Apple Music which launched in June and charges $10 a month for unlimited access to a massive catalogue of songs. According to the Daily Intelligencer “They [users]can listen to them [songs]offline, just like on Spotify. They can skip songs, just like on Spotify. And they can listen to as much celebrity-curated internet radio as they want to, too.” One of the main differences, however, is that Apple Music doesn’t offer a free service. But because Apple is so lucrative, it can undercut its rivals on price and offer a larger proportion of subscription revenue to record labels the Daily Intelligencer reported.

According to Time only about 15 percent of Spotify’s 60 million users pay for the service, but their subscription fees make up around 90 percent of the company’s revenue. Time also points out how easy it would be to switch over to Apple Music seeing as users aren’t locked into the Spotify service which has no cancellation fee. “This also explains why Apple’s rolling out an Android version of Apple Music — to go after more of Spotify’s user base. If Apple converts enough of Spotify’s paid users, it could totally decimate Spotify’s business.”

Though it’s early days yet, we asked Spotify if it felt threatened by Apple Music. Spotify director of communications for Asia-Pacific Jim Butcher responded but did skirt around the topic somewhat.

“Spotify has become the world’s most popular music streaming service by focussing on our users – providing them with the best in class music experience,” he says. “Continuing innovations – such as the Playstation integration and most recently the Discover Weekly playlist and our new Running feature – lead the way in terms of service quality and personalisation.”

“And remember that Spotify offers a fully free tier across desktop, tablet and mobile,” he says. “The majority of our users began streaming on free before upgrading and this world-beating offer has been fundamental to our success. Plus we’re available across all platforms, from Android and Windows phones to Playstation, Sonos, your car etc.”

He says Spotify will continue to innovate with new and original features, catalogue and pricing. “To ensure our users get the best music experience on the planet.”

And he’s not wrong, Spotify has been actively innovating with the way it offers its service. This is exemplified in its clever relationship with car brands including BMW, Mini, and Ford and also its relationship with Uber. Vale says these relationships are going well. “As far as Spotify goes we want to be with people as many times as we can when they are listening to music. A lot of people are creating playlists when commuting. We have a great relationship with BMW and Mini. Rather than worrying about bluetooth integration it’s all in the dash and ready to use.”

Spotify didn’t have information on hand as to whether car sales for these brands had increased since Spotify had become in-built into their vehicles.

“Playstation was [also]massive for us. So every Playstation 3 and 4 user can use Spotify through the TV. The first day we launched with Playstation there were 1.5 million app downloads in the first 24 hours,” she says.

Vale says Spotify has run some successful ad campaigns in New Zealand, one of which was for the NZTA targeting young Kiwis heading to Rhythm and Vines or Rhythm and Alps. “The Government were really worried about accidents on the road as there were lots of accidents in 2013 so they wanted 2014 and 2015 to be a safer experience. They got people to curate playlists from where they were departing to a particular festival they were going to, Rhythm and Vines or Rhythm and Alps and it created a playlist for the length of that journey and then they had artists from the festival in between the ad breaks telling them to drive safely.”

Despite Spotify’s success so far, she says there is still a long way to go. “At the moment we are in 58 markets throughout the world. Huge markets. [We need to work on] personalisation and localisation.”

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