Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth
Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth

Along with headline-grabbing items like a Lars Ulrich/Sean Parker public reconciliation, a performance from Frank Ocean and, of course, the recruitment of Metallica's catalog, yesterday's Spotify press conference announced some important new features that took the platform in a direction that revitalizes the importance of curation.

In the process, Spotify also aimed to deliver the message that it can be trusted - by pairing up Parker with Ulrich, who were the symbols of the legal battles around Napster a decade ago - and also loudly stated that they're paying out 70% of their revenue in royalties.

But first things first: What's different about the service? As anyone who's looked at it and thought "I can listen to almost anything - what do I listen to?" can attest, until now, Spotify has served as a giant music crate with little curation except for the "What's New" and "Related Artists" sections, and whatever their third-party app developers have built into the platform. Furthermore, artists have been left with little ways to represent themselves or interact with their listeners on that platform, and have had no options for monetizing their fans outside of a listening scenario. Spotify's newly launched Follow, Discover and Collection features aim to solve these problems by creating and adding a focus on tastemakers and adding more ways and context around how the platform recommends music to its users.

As J Herskowitz of Tomahawk tweeted, "Spotify rightly moves from friending model to asymmetric follower one. Press refers to this as both 'more social' and 'less social.' "

Of course, he's referring to Spotify's newly added Follower tab that allows fans to follow artists, companies, and recommended people. Spotify CEO Daniel Ek explained that the update encourages people to become tastemakers and build their followings. "Spotify is great when you know what you know what you want to listen to, but not so great when you don't," he admitted to the audience at yesterday's event, continuing by saying that he hopes the Follow feature will be used by "journalists, trendsetters and artists... not just your friends but really anyone on the music graph."

But what exactly does "more/less social" mean? For many, the move means a departure from Daniel Ek's original stance that listenings will serendipitously discover music from the crowdsourced collective opinions of our friends via Facebook's open social graph that Spotify relies so heavily upon, in favor of a move toward more authoritative listeners.

Robert Andrews of paidcontent.org offered an incisive -- and rather hilarious - stance, saying "For me, music is not 'social' but is, in fact, the most personal cultural artifact imaginable. So, when Spotify has shown me what my friends are listening to, I just realise this: I love my friends, but I hate their music.

Indeed: With over 5 million paying subscribers who have created a reported 1 billion-plus playlists with Spotify's catalog of 15 million artists, how in the world is that one guy I met at a party in college who listens to Jason Aldean multiple times a day supposed to help me find bands that I like that I've never heard of before?

Of course, a large part of the challenge, as Josh Constine of Techcrunch noted, is with information overload. "The problem is that Spotify is adding 10,000 to 20,000 new songs each day, and artists have to fight for discovery with the world's history of music. Users are asking them to help them sort through all this music.

Ek illustrated just how this Follow feature is designed to do just that, paying special attention to use newly minted Spotify endorsers Metallica as an example of just how users can now follow and receive music recommendations from their favorite bands via the platform's new Discover feature. Spotify's new Collection and Discover features adds a heavily consumer-demanded library-building component to the platform. Ek noted that "a third of all playlists on Spotify are just albums people have saved. It was clear people want to listen to albums and wanted an easy way to save them, so for us it was just about making it easier for users to save music the way they wanted."

Ellis Hamburger of TheVerge noted that "Both Collection and Discover seem a lot like features we've seen in Rdio - which has far fewer users, and to this has point focused much more on discovery than on playlists and integration with social networks like Facebook.

But for all that, the most symbolic part of the event was the Ulrich/Parker rapproachment. Greg Sandoval of CNET noted, "Ulrich's participation and the signing of Metallica was designed to send a message: Spotify is a potent legal alternative to piracy and therefore a friend of music artists. By adding Metallica's catalog, built up over 30 years, to its music library, Spotify should get a big boost in credibility with artists. Ulrich and the band have had the reputation since those anti-Napster days of being skeptical of digital services.

Yet many artists still remain very skeptical of digital services - particularly Spotify. While the endorsement of Ulrich - and Glassnote's Daniel Glass, who stressed that Spotify did not cannibalize Mumford & Sons' sales -- may be a great PR move that alters opinions of those easily swayed by the public endorsement of major artists, the fact still remains that for all of Daniel Ek's proclamations of half a billion dollars paid, artists are still receiving pennies, and fractions of pennies.

Peter Kafka of AllThingsD hammered this fact hard in an interview with Daniel Ek after the conference. He told Ek, "You've paid $500 million back to rights holders, but most artists see very little of that. It goes to the labels." Ek responded, "I don't know what kind of deals exist between the artists and the labels, and that's part of the controversy. What is also fair to say is that Spotify is a young service. We've only been live in the U.S. for one year. And quite often it takes a year, or 18 months, for many artists to see their first checks from Spotify."

Yet as Kafka said in his follow-up question, some artists have gotten paid and they're complaining the payout is tiny, while they see that Spotify is worth $3 billion dollars. In response, Ek fell back on a refrain that has become familiar from streaming services: increased volume will increase the payouts. "If we scaled up to a service the size of iTunes, the music industry would be two or three times the size it is today, in terms of revenue."

"We know that our fundamental model is sound," he said. "Now it's just a perception problem. But more and more people are coming around.