What marketing can learn from Spotify

One of my favourite quotes about change, and there are many, is Socrates’, “the secret of change is to focus all of your energy not on fighting the old, but on building the new”.

It’s a human failing to know that change is inevitable and progressive and yet still fear it so greatly. This week on Inside Marketing I spoke to Will Page, former chief economist at Spotify and more recently author of the brilliant Tarzan Economics.

On this week's Inside Marketing podcast, author Will Page, former chief economist at Spotify, joins us to discuss his book Tarzan Economics and how brands should be preparing for their own "Napster moment". Listen now: 

To say the book is about economics, music or even disruption would be a disservice. Yes, it is about all three things, but it’s so much more. It’s a book about embracing change, and it’s a book about economics. But it’s not an economics book, you don’t need to have studied the subject to enjoy it, learn or be inspired by it.

The transferable nature of the subject is made clear from the opening quote from his long-time mentor, Irish-educated economist David Safir, who reminds us what we hold in our hands is distinct from what occupies our ears when he states: “While music moves to the rhythm of the composer, words move at the pace of the reader.”

Page doesn’t feel the need to blind you with jargon, which can often be the case with business books. He’s obviously very bright but you never feel like he’s trying to prove it. At its core it’s a wonderfully told story rooted in a universally relatable backdrop of music to provide insight for any business facing what Page describes as its “Napster moment”.

It is impossible to do justice to any book in an article – we went deeper on the podcast – but even then, we merely scratched the surface. I advise anyone reading this to listen to the podcast and read the book.

Tarzan Economics is the idea of letting go of one belief system or way of doing something and grabbing a new one in a bid to progress. You may be asking, why use music as a case study? As Page points out, “music had a twenty-year head start on disruption, music was first to be disrupted and first industry to recover”.

That’s not to say that all industries could recover, but we can learn a lot from the music industry’s mistakes. Page points out “the industry spent the first 10 years fighting music streaming sites, locked in litigation, suing consumers, incurring millions in legal costs and losing billions in revenue”.

It’s fair to say that once you start suing consumers in basements for illegal downloads you have a problem. The industry was clinging to its revenue stream, that of “pallet loads of CDs”, rather than spotting the trend – consumption or usage which didn’t require ownership. As Page puts it, “the way the industry saw change was asking them to swing from a vine of analogue dollars to one of digital dimes”. The remedy sounded worse than the disease.

He sums it up nicely, “the old vine was a world of front-loaded sales while the new vine was a back-loaded world of streaming”, meaning that pre-streaming consumers paid up front for music and consumed later while streaming paid by engagement, you only pay for what you consume.

Consumers no longer had to buy the album if they only wanted one track, and it also meant that marketing and revenue to artists was front loaded rather than a slower release over time. As I spoke to Page about the music industry’s woes, I couldn’t help but wonder how Spotify became such a success.

Convenience

Free music was already widely available, illegally, and artists loathed the fact that iTunes allowed consumers just “buy the hits” rather than the album, so I wondered how an all-you-can-eat subscription model was going to work. Page says Spotify’s success was built on convenience.

“The music industry only saw the problem of theft, they ran ridiculous campaigns talking about morality of stealing from shops, breaking car windows to steal etc and tried to say that piracy is the same, but they missed the point completely. Kids weren’t steaming music to stick it to the man, an act of anti-establishment from a disenfranchised youth, it was simply an easier way to consume music.”

And therein lies the problem, they were fighting the wrong battle, blind to the inevitable as they sued file-sharing sites, service providers and everyday consumers in what became an unwinnable and never-ending battle of legal whack a mole.

Spotify catered for convenience; music played instantaneously (engineers calculated the point where the human brain cannot spot delay as 250 milliseconds after your thumb presses play). Spotify worked for consumers, but it also worked for artists, and 20 years after Napster bloodied the nose of the music industry, revenue has recovered.

In the days of physical CD sales, artists were paid up-front but revenue dropped after 18 months when music became “catalogue” – which, in another fascinating story in the book, is all due to Meat Loaf’s Bat out of Hell album.

But in an all-you-can-eat streaming model revenues can grow over time. Page mentions a Spotify study analysing all tracks released in April 2015 (more than 750,000 songs in total) which, “put bluntly, showed year two sales earned more than year one”.

He cited the story of US band, Imagine Dragons, which is a fascinating insight into music sales, changing consumption habits and how streaming services benefit artists. Under the analogue rules the artist would have been dropped after 18 months, but due to the slower burn of music streaming that fuels discovery (playlists, suggestions etc) they have become one of the most streamed artists in the world, racking up 43.6 billion global streams across audio and video today, netting them more than £130 million in revenue.

It’s not just digital music driving the resurgence, vinyl has also recovered. This creates an interesting paradox, the digitisation of music seemed to cater to a cheaper end-user cost of consumption – after all Spotify’s $9.99 a month price point in the US hasn’t changed in 20 years despite the exponential growth of music on the platform.

Page points to irrational or pivotal thinking. “We’re seeing consumers who love a thrill of unlimited music streaming for $9.99 a month and the very same people loving the thrill of buying maybe two beautiful albums on vinyl, maybe spending another $40 a month.”

It seems counterintuitive but as he points out, “consumer behaviour is anything but logical in most cases, if it was logical we’d see a convergence to the middle, we’d see high street stores like Tesco doing well, but they are not, we’re seeing Aldi do well”.

The book is filled with entertaining insights, observations and anecdotes. Tarzan Economics teaches us that you cannot stop disruption, you can delay the inevitable, which compounds losses, but you cannot fight it.

The book takes learnings from the music industry and serves them up as principles any business can apply, in any industry. As I look at some of the challenges facing the marketing industry I cannot help but feel we’re not far away from our Napster moment, but we know not to fight in denial. At least we can start to look for a new vine long before the existing one withers.

Dave Winterlich is chief strategy officer at dentsu, Ireland