The music streaming service Spotify lets you listen to millions of songs any time you want for free, as long as you listen to the occasional ad. Or you can pay a subscription fee of $10 a month to get the songs without the ads. But despite its rapidly growing user base, the company is hemorrhaging cash. For every dollar Spotify takes in, it pays 98 cents in licensing fees.
Sam Hamadeh is CEO of the research firm PrivCo. He says Spotify's problem is that it's underpricing its service. He likens Spotify to an all-you-can-eat buffet. "Well, obviously there are those people who are going to eat an enormous amount," says Hamadeh.
I have to be honest here. I am one of those people. I listen to a ton of music on Spotify -- everything from '60s pop songs to Italian dinner music. And every time I play a song, Spotify has to pay a licensing fee. Even though I'm a paid subscriber, chances are, I'm costing Spotify money. The good news for Spotify is that subscriptions are up.
"And that's actually quite an encouraging sign for their long term health" says Dan Cryon, senior director of digital media at IHS. Cryon thinks that one thing Spotify has done well is create a platform where people can listen to music on all their devices. "The question becomes once you've got music to where people want to listen to it, what else can you do to add value."
One possible way is to offer video. Spotify could create its own music-related show like "American Idol" or "The Monkees." Cryon suggests that a better model for Spotify to follow is The Metropolitan Opera.
The Met has been successful at getting users to pay to watch performances online. Spotify, for example, could offer the same service for concerts.
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