Spotted on the LA Times website: Bing is paying Google to advertise its free music service? I think my eyes are going to spotify.
As a follow-up to my post from yesterday about the UK launch of Chris Anderson's new book Free, I thought I'd share thoughts from the panelists: Stefano Hatfield, editor of thelondonpaper; Paul Brown, the UK MD of Spotify; and Rory Sutherland, Vice-Chairman of Ogilvy Group UK. All comments below are paraphrased.
Brown: The general thought about music is that advertising is not the panacea. Radio has done very well with the free model. Pandora is projecting a turnover of $40 million this year. Licensing costs are high but there are successful free business models where there are paid and free elements. "Free" is a very powerful way of generating profit from high margin products. Spotify is only four months old but revenue is doubling month on month.
MediaWeek: How are free newspapers affecting consumers? Is the work of traditional journalists in jeopardy?
Hatfield: In the past three years, several jobs have been created at thelondonpaper and London Lite. But there aren't as many journalist jobs on each title. The Metro has about 100 people on staff. Fleet Street is going to have less journalists. It's a more dynamic and fast-moving process. When Michael Jackson died we did 24 pages in two hours.You have to be more creative when you can't spend 10 million pounds on a Madonna photo.
MediaWeek:Is there a down side to the "free" business model?
Sutherland: Jeremy Bullmore said some of the worst successful products in the world survived because they were free -- the metal coat hanger and the warm-air hand dryer. The end user had no say in it. White wine that is free is invariably worse than wine that you choose.
Free thoughts - the UK launch of Chris Anderson's new book
Digital serfdom: I want my UGC (an argument for fair compensation of content creators)
Trendy spotting: Spotify
Last week I attended the UK launch of Chris Anderson's new book Free. Anderson is the former editor of Wired magazine and author of The Long Tail.
The event, hosted by MediaWeek, featured free drinks (or was that payment-in-kind for some publicity?) and featured panelists Stefano Hatfield, editor of thelondonpaper; Paul Brown, the UK MD of Spotify; and the inimitable Rory Sutherland, Vice-Chairman of Ogilvy Group UK.
No such thing as a free lunch?
According to Anderson "free" used to be a "huckster's phrase" with offers such as "buy one get one free" and "free with purchase". Perhaps referring to advertisers as hucksters in a room full of people that work in the industry was not the best choice of words, but no one seemed to object. He gave examples of offerings based on "free" such as Jell-O giving away free recipe books to stimulate demand of a product no one had then heard of; King Gillette selling razors to banks who then gave away the razors with their "save and shave" program (customers then had to buy the blades); and mobile phone providers giving away the handsets for free in order to sell minutes.
He mentioned that advertising-based business models are also built on free -- a third party is subsidizing your free radio or TV programs. The internet has started with this "old media" model. "With a new media, you always adopt the old business model," Anderson explained.
Freemium - 21st Century Free
The new media model is freemium, where a company gives away 99% of its product/service/information for free and charges a premium for just 1%. This model is already in use by companies such as Spotify. Anderson's theory of the "radical new price" is based in part on the fact that "the cost of everything online falls by 50% every 18 months", a theory that is eloquently debated by Malcolm Gladwell in The New Yorker. (Anderson's response is here.)
At what cost free?
I would love to see a panel debate with those two, or a roundtable about the future of intellectual capital, creativity and investigative journalism. I briefly asked Sutherland after the event whether he thought the trend towards free resulted in creativity being devalued. After all, Ogilvy makes its money from creative ideas. He referred to former J Walter Thompson chair and Guardian columnist Jeremy Bullmore (who I find myself agreeing with more and more), who says that you should never write for free. But Sutherland added that writing for three hours per week is pleasurable, and people will do it for free, but any more than that and it becomes a job. And people want to get paid.
So are all of those people writing for free for three hours per week for online publications such as The Huffington Post who (unless there is more recent news) doesn't pay bloggers taking away jobs from people who are journalists by trade? This to me is where the debate gets interesting, but Anderson seemed to shrug off the notion that there would be a serious impact to journalism, giving an example of an exposé by a local blog about vegan restaurants selling products that were not, in fact, vegan. I doubt those same bloggers would volunteer to go to Iraq to determine whether the purported weapons of mass destruction were, in fact, weapons of mass destruction. Thank goodness we have the likes of Sean Penn for that. Hatfield did mention that we'd always have Reuters and the AP to cover those stories; however, isn't this consolidating information, power and influence on the some on the most important global issues - the issues that would most benefit from the opinions and investigations of trained journalists? But I digress. This is an issue for the intellectuals of our time to debate. At least, I hope they will.
More on "Free"
I will post comments from the panelists tomorrow.
Thanks go to David Quigg for the Gladwell links.
Last night I went to a Digital Lounge event with Spotify's UK Sales Director Jon Mitchell. Spotify is a streaming music service which was founded in Sweden in 2006 and has attracted one million users. The free service is also available in Norway, Finland, the UK, France and Spain. It's premium service is available elsewhere for £9.99 per month.
According to Mitchell, Spotify offers a "legal alternative to piracy". In fact, Mitchell boldly stated that their only real competition is music pirates, although The Independent has stated that they have "declared war in iTunes".
Spotify launched in the UK in October 2008; the UK has quickly become their biggest market with 10,000 people per day signing up for a free account. Unlike many "next big things", they have found that people who download Spotify use the service on an ongoing basis, with average user sessions of 60 minutes.
As a Spotify user and huge fan, I can say that main attractions for me are:
They are the first streaming service to strike deals with all the majors, which took a major shift in the labels' attitudes. Mitchell said their initial response when asked if they'd provide their music for free was "F--- Off". It took two-and-a-half years to get them to change their minds. Spotify has also signed deals with CD Baby and independent music aggregator Merlin.
Mitchell said the free model is not going away, as with some other services who are ending their free love. Instead, they will entice users to join their Premium service with unique offerings, such as access to U2's latest album one week before it was released. "We want users to have access to the free version so they can test it and see that it's easy to use and have the music they love," explained Mitchell.
Because of the ad-funded model for the free service, they "don't need 80% of their users to pay for the Premium service." However, Mitchell admitted that take-up of the Premium offering is currently low, but he expects it to improve as they educate people about upcoming features.
Mitchell didn't go into too much detail about their demographics, but he did reveal that 20% of their audience is 45+. They can target ads based on age, gender and post code. This makes advertising on Spotify much more 1-to-1 than on traditional radio.
What's next for Spotify?
I'll be interested to see what else develops. I think there are opportunities for brands to use Spotify in unique ways, perhaps through mashups. Their founder also started affilliate marketing company TradeDoubler, so he certainly knows how to work with brands. Mitchell said he "can't wait to see what happens when brands and bigger companies get involved." I guess as the sales director, he has more than one reason to be excited about that.
I don't know if I've ever written such a glowing blog post about one company. I hope someone from Spotify sends me a t-shirt.