Stuart Dredge from Music Ally was down the front for the big closing MidemNet session of the day: Daniel Ek from Spotify and Patrick Walker from YouTube…

This is the big one: Spotify and YouTube on stage simultaneously, interviewed by Ted Cohen. Who kicks off by asking about MP3tunes founder Michael Robertson’s view that ad-supported streaming can never be profitable. Is he right?

“I think he’s wrong,” says Walker. “At YouTube, we’re on track for that – it’s just a question of execution.” The company now has 75 of the top 100 advertisers running campaigns on YouTube, and signed up 500 new partners to run ads on the site in the last year. “Now we’re monetising over a billion videos per week.”

CPMs? YouTube is getting £15-£30 for pre-roll ads in the UK, says Walker.

Over to Spotify. “We don’t really differentiate on the ad-supported model versus the subscription model. We look at it as one experience,” said Ek. So the model is about getting people to upgrade to the premium version, once they see its merits.

Cohen asked about the conversion rates on Spotify. “What we’re seeing more and more is a lot of people think mobile or portability is the single driver. It’s definitely the biggest one, but… more and more of our users are understanding and building their library in Spotify. Once they invest in that, the willingness to pay increases.”

Ek said that people are storing their music in playlists, and collaborative playlists shared with friends. “That’s a context view. Right now we’re almost close to 100 million playlists on our users, and 30% of those are albums. People do actually listen to albums, and they’re storing them.”

Cohen turned the conversation to partnerships with the music industry – how have they evolved for YouTube? Walker said Google has spent a lot of effort developing platforms and models to work with the music biz. Since last year’s MidemNet, YouTube has patched up its relationships with Warner Music Group and PRS for Music, and launched new features – such as the U2 live webcast it ran late last year.

“I’m very encouraged by these changes, and we do work hard. And the same thing with video.” YouTube now has deals with two commercial broadcasters in the UK – Channel 4 and Channel 5 – to put their long-form programming on the site, and is working on signing up ITV too.

What about the concept of cannibalisation – is that still a barrier for YouTube? Walker says he has yet to see an example of content on YouTube cannibalising other revenues, citing the famous Susan Boyle clip as an example – her album spent six weeks at number one in the US, and has sold more than eight million copies. “All off the distribution of a clip on a platform outside the main broadcast country,” he says.

Cohen turned the conversation to artists, and the backlash about artists not making money from services from Spotify and YouTube. Walker says that it was “unfortunate” that YouTube wasn’t able to monetise the Susan Boyle clip in the UK, although it did elsewhere in the world, working with Fremantle (the producer of Britain’s Got Talent).

“Just being present has value, even if you don’t monetise the clip at the point of access,” he said, referring to later record and ticket sales for artists, as well as the data that YouTube can provide for artists and labels from the usage of their content.

Back to Spotify, which has been doing some exclusive deals with artists like Robbie Williams. “A lot of the artists are starting to really see the opportunity with the Spotify platform in terms of reach,” he said. “There’s a lot of purchases that are driven from Spotify to our download partner, 7Digital.” And Spotify is also trying to capture more data and work with labels on making the most of it, like YouTube.

Cohen asked about Spotify’s plans for personalisation, recommendation and discovery. “We’re looking at that quite a lot,” said Ek. “But we’re not Pandora, we’re not Last.fm. I think they’re fantastic products, but what we’re trying to do… we’re really trying to drive you to create your library and to use Spotify as the cloud-based service where you have your music library.”

But Ek says that Facebook and Twitter are Spotify’s two biggest traffic sources, as people share playlists with each other. So the energy for a lot of the discovery that might be happening on Spotify is coming from users at the moment.

Cohen asked about the opportunity for meaningful commerce to happen within these services. Walker said that what’s more important is the network effect – people recommending songs or videos to their friends. He also highlighted the fact that Spotify and YouTube should be seen as alternatives to piracy – capturing the traffic when people are looking for a certain song name.

“The truth is that no one has figured out the advertising space around music… and no one has figured out the subscription model either,” said Ek. “For me, this is the first time in history when technology and the music landscape are somewhat aligned, and that’s the key to Spotify having more than 250,000 subs.”

Cohen asked about Vevo, and the idea of creating an ‘artificial scarcity’ – some videos only available on Vevo and not on other sites, to drive up the advertising rates. Walker says that hasn’t happened. “Vevo is built so that content can be accessed on YouTube and on other places where it can be distributed… Vevo is built for that to occur.”

How about OK Go then? The band whose video on YouTube can’t be embedded outside YouTube, to the band’s fury. “We create tools that allow rightsholders to determine their destiny on the platform,” said Walker. So labels decide whether videos can be embedded, watched on mobile, seen in certain countries… Cohen asked if this isn’t confusing for customers?

“Our responsibility is to give them access to the tools to make those decisions,” he said, while warning that labels shouldn’t be artificially blocking videos from being distributed if there’s no contractual reason to do so – especially for a band like OK Go, whose fame is in no small part down to people embedding their Here It Goes Again video a few years ago.

“It’s an education issue, but we’re not going to force people to push their content out to places where they don’t feel comfortable,” said Walker.

Cohen turned to Spotify’s US launch – what’s holding it up? “The US is obviously a very important market for us, and definitely something we have at the top of our priority list right now,” he says. “In the US, we want to make sure that the industry understands what we’re trying to do. We’re trying to prove that free drives paid… We’re now talking to publishers, collecting societies, managers and labels to explain what we’re doing.”

And a timeline? Ek said he couldn’t really comment. As you might expect.

Ek was then asked by an audience member how big downloads are – how many of the service’s users are downloading. “We were surprised by the amount of people that are actually buying tracks,” he said. But he thinks there are lots of improvements that can be made – for example allowing people to buy playlists.

“There are tons of things that we can do to drive commerce, to package content better… I think you’ll see us adding a lot more of those kinds of features, and trying a lot more things around that.”

So Spotify’s business model isn’t just about advertising, it’s about all the pieces – ads, subscriptions and purchases. And that was that.


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Stuart Dredge

Stuart Dredge is a freelance journalist, and a regular contributor to Music Ally, The Observer and more... including midemblog :)

1 Comment

  1. I’m a fan of Grooveshark so it should be interesting to see how they penetrate this perilous market of music streaming. Move over Spotify, icloud has Grooveshark!

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