Last week, Spotify announced their App for Apple’s iPhone. Unfortunately Apple is known for controlling tightly the Apps available to iPhone users. As Spotify is a service changing the way people consume music, it could potentially harm the already in difficulty music majors, and compete with Apple’s hugely successful music store: iTunes. The Spotify people, knowing this, have made sure to make the release of their App a matter of public interest involving as many press agencies as possible. The spotlight is now awaiting Apple’s reaction.
Let’s looks at what the repercussions will be of such an App, not only on iPhone users, but on the whole entertainment industry. As mentioned before, if the ownership and storage of music is now unnecessary, why would anybody buy discs in a shop or buy the right to download a song on their own media player from an online store?
If the storage of media files is not necessary, will it mean the storage race will finally end? Last week, it was made public that Apple just ordered half a billion Dollars worth of memory for their handheld devices. These devices will always need a certain amount of memory. Until now memory manufacturers have been focusing their efforts on increasing the amount of bytes stored in each chips. Maybe they will now focus their efforts on making low powered and faster chips. This would be quite a change in strategy for the people and companies involved with the industry.
Connectivity providers are a also going to be hugely affected by the change. Their business models will change over time, charging users for a data access rather than a voice + SMS package. The amount of data they carry will be multiplied many times, and their quality of service will need to increase at the same time. We can predict the industry will grow until most people carry a smart device connected to some sort of wireless data network. The development of these network will involve a lot of R&D. When the services are reliable enough, we might even see a decrease in physical lines coming into homes as people will rather use a single service for accessing the internet.
Accessing the internet at home on a computer through a smart phone could be a good proposition. Indeed, if the service is reliable and fast enough, home users will prefer do that rather than have a phone line and an ADSL connection – which often involves two or more companies, is relatively complicated to set up, requires additional hardware, and might even involve an engineer in order to fix the line. Charging £15 per month for this kind of access on top of the regular cellular data package most people have could become interesting compared to £12 + £15 for a simple internet connection at home.
Finally, the music industry majors will need to revise their business model, as the exchange of money for the ownership of media is obviously obsolete. These are people who have been struggling for most of the past four decades, as they’ve fought against tapes, compact discs, DVDs, radio, peer to peer and social networks. They did manage to protect their business model by introducing legal regulations (HADOPI) and technical measures (DRM). The Spotify business model is perfectly legal, but will damage their income sources. It leaves us to wonder what will be their next move in order to preserve and grow their income. One thing is certain, the Spotify model is here to stay.
StartupCafe 
I have to disagree with your premise that spotify is a danger to the music industry… Every track played on spotify makes money for the music industry, and most music on spotify is distributed through the major labels… In fact it is only recently that spotify had opened up to independent artists through their collaboration with independent artists.
Now one might argue that a CD costs a lot more than listening to a track on spotify, however the majority of consumers have always had a very limited monthly spend on music… Perhaps 1-3 CDs per year. In contrast a subscriber to spotify pays 10£/m every month, 120£ per year (of which we can assume that a significant proportion ends up in the coffers of the music industry, even if partially by subsidising the streaming rates for non-subscribers). Of course less less than 1% of spotify have subscribed so far but even the streaming rates that spotify pays are more than most of the alternatives for the music industry (bittorrent say).
As for the iPhone app, if it gets approved, that will only be usable by paid subscribers and should lead to a significant increase in their numbers.
Of course it is always a challenge for an industry to adjust to such a new model, and the music industry could have had something not too dissimilar in the Napster trying to go legit around the time of its lawsuit, but it has taken them this long to adjust to the reality (and, I would argue, the potential) of new distribution models.
Thanks for your insight Janek. I agree with you, the music industry is to stay. What is changing is the way they are getting their income: as you described, through a streaming license rather than through more traditional revenue channels such as CDs and downloads. The pressure is now on Spotify, they need to pay for these licenses and make sure they do not fun out of funds with that small ratio of paying/non-paying users. It looks like they have it sorted out for now, as they’ve just raised some cash with a $250 million total valuation.
The fact that the iPhone app will only be available to paying users is news to me, and if you’re right I think it’s a pity. It would indeed be a way for Spotify to increase that ratio.
Great insights. It’s easy to forget how many different parts of the technology world these changes reach.
Look what popped up on Digg.com
http://www.engadget.com/2009/07/31/fcc-now-inquiring-about-atandts-involvement-in-google-voices-iph/
“Yeah, we’re pretty much all peeved by Apple suddenly ejecting all traces of Google Voice from the app store, but now it looks to have drawn the ire of the Federal Communications Commission…”
This might make Apple think twice about turning down Spotify!
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