by : April 2014, Business

Beats v. Spotify

Beats v. Spotify

As of January 21st Spotify now has a legitimate contender in the music streaming market, as Dr. Dre and Jimmy Iovine’s Beats Music steps into the ring. It is the culmination of eighteen months of development after Dr. Dre’s lucrative consumer electronics company purchased MOG in July of 2012. Entering with a soft launch in late January, the service announced its arrival in spectacular style with a Super Bowl advertising blitz featuring T.V personality Ellen DeGeneres. While Beats Music and Spotify have many similar features, both services have very different views of the future of the streaming marketplace, and different ways of communicating their vision to consumers.

Features Comparison

Like Spotify, Beats Music offers a library of over 20 million songs to choose from, the ability to create playlists and sync them to your mobile device for offline listening, and a radio feature1.  However Beats offers far more advanced features for discovering music thanks to its “Sentence” radio and “Just For You” curated playlists tailored to taste preferences you give when signing up. The Sentence radio helps find the right music for the moment by taking into account your location, mood, who you are with, and the type of music you want to hear. For example, a user could say, “I’m on my way to work, and need to wake up to rock music” and a specially curated radio station would come on to perk up your morning commute. The music curation doesn’t end there: the “Highlights” feature offers promoted content, such as a given artist’s influences, and the “Find It” feature creates genre and activity focused playlists for dancing and cooking out2.  Beats Music also steams FLAC files, which provide better audio quality than Spotify’s 320 Kbps. Such personalized service and higher sound quality bodes well for Beats Music, allowing it to stand out in a crowded market.

A Departure From Freemium

Beats Music’s choice to be a paid only service is a radical change from the current “Freemium” model services of Spotify and Rdio. While this choice is likely to turn away potential users, it shows Beats is committed to monetizing digital streaming, and making the service sustainable.

Many have expressed concerns over the sustainability of the Freemium model, including Rhapsody CEO Jon Irwin, who claims Spotify’s strategy is “to give music away for free as a way to communicate the value proposition around on-demand music. They said, ‘we’re going to raise capital and fund paying for music for free and then gradually introduce restrictions so that people move toward paying for music in a truly mobile setting.’”3 By being a paid only service, Beats is hoping to make a profit early on by relying on  paid subscriptions more than advertising revenue4.

These sentiments seem to be justified after Spotify announced that its net loss increased from $61 million in 2011 to $79 million in 2012. The increase, which occurred despite a growth in the user base to over 24 million, 6 million of which are paid subscribers, is largely due to their cost of sales, which totaled $494 million in 2012, almost double their 2011 total of $253 million.

The Advertising Splash

Beats Music has chosen to market itself in the same spectacular fashion it chooses to sell its high-end headphones: with a lot of hype. Aside from the flashy and expensive Super Bowl ads, the company has advertised on the Grammys, in the New York Times, and has cultivated partnerships with Target, and principal partner, AT&T. Customers of the phone carrier get an extended trial period of 90 days for families and 30 days for individuals. This is a significant improvement over the seven free days for non-AT&T customers, and, should they decide to buy, AT&T families have the option of having up to five Beats accounts on ten devices for around $15 a month5.

All of this clearly fits within the company’s self-proclaimed marketing objective of  “building awareness”.  It encourage people to “’try the next generation of music services.’”6 As a latecomer to the streaming game, Beats is betting on flashy marketing to leverage its brand. And it is clear that it is targeting a different consumer than Spotify, including moms in middle and suburban America. That is why they chose Ellen DeGeneres as their spokeswoman, and the Super Bowl as their platform. According to Ryan Anes, co-founder of the brand development agency, Edge Collective, more women watch the Super Bowl than the Grammys and Oscars combined. DeGeneres pushed a family discount plan there.

If this maneuver works it has the very real possibility of breaking digital streaming out of a young, cool, niche market and making it a service that every parent in America can get behind. “[It] would put Beats Music in the right place at the right time” according to Forrester analyst Jim Nail.7

Spotify on the other hand has always had a more conservative marketing strategy, which Ryan Anes says reflects its Swedish roots. He describes Sweden as “a culture of ‘what we’ve got is good’ and ‘[we] don’t always need to tell the world about it.’8 This word of mouth style of marketing is what put Spotify on the map when it first came to the States, and explains why the service resonates with urban young consumers between 25 and 35.

What It All Means

All of these differences suggest that each player has their own distinct idea of what the future of on demand digital streaming will look like. Beats Music sees it as a mass-market product that users can tailor to their tastes and mood, and as a platform that puts music discovery front and center. Spotify, on the other hand, is looking to give music listeners a better free experience in the hopes that they will eventually be persuaded to switch to a paid subscription.

Both services’ goals of expanding the market and keeping the barrier to entry low are ultimately good for artists and good for music consumers. By creating more value for music, services like these could, at the very least, convince consumers who used to pirate content that paying is a good alternative to stealing music of lesser sound-quality. It may be early in the race to tell if the market is big enough for both services or if digital streaming will turn a profit. But that doesn’t seem to bother investors yet. They are colonizing the market in droves

By John Lahr

 

Endnotes

1. Dickey, Megan Rose. “Beats Music Just Replaced Spotify As My Go-To Music-Streaming Service.” Business Insider. Business Insider, Inc, 21 Jan. 2014. Web. 09 Feb. 2014.

2. Dickey, Megan Rose. “Beats Music Just Replaced Spotify As My Go-To Music-Streaming Service.” Business Insider. Business Insider, Inc, 21 Jan. 2014. Web. 09 Feb. 2014.

3.”Rhapsody CEO: Freemium Doesn’t Work BY Minda Zetlin.” Inc.com. N.p., n.d. Web. 09 Feb. 2014.

4. Grundberg, Sven. “Spotify’s Chief Stays Confident in Business.” The Wall Street Journal. Dow Jones & Company, 21 July 2013. Web. 09 Feb. 2014.

5.”BEATS MUSIC IS HERE!” Sites-beats-Site. Beats By Dre, 10 Jan. 2014. Web. 12 Feb. 2014.

6. Solsman, Joan E. “Spotify vs. Beats: The Super Cool Battles the Super Bowl.” CNET News. CBS Interactive, 02 Feb. 2014. Web. 09 Feb. 2014.

7. Solsman, Joan E. “Spotify vs. Beats: The Super Cool Battles the Super Bowl.” CNET News. CBS Interactive, 02 Feb. 2014. Web. 09 Feb. 2014.

8. Solsman, Joan E. “Spotify vs. Beats: The Super Cool Battles the Super Bowl.” CNET News. CBS Interactive, 02 Feb. 2014. Web. 09 Feb. 2014.

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