Interview: Paul Brown, UK MD, Spotify: A Million Strong, Mobile To Drive Premium

imageAll-you-can-eat music streamer Spotify has hit a million UK registered users since launching in October, new UK MD Paul Brown announced at MediaGuardian’s Radio Reborn conference on Monday – but we still don’t know how many are paying subscribers.

Just one day in to the job, and having just returned from an initiation he dubbed “Spotification” in Spotify’s native Stockholm, the former Pandora and SonyBMG exec accepted an invite to be interviewed on stage by me at the conference. Brown said “a decent proportion” are now paid-up – the service is planning mobile apps and eyeing rare content like archive radio shows to draw more subs.

“As we look forward, editorialisation, which radio does extremely well, is something which we can learn from,” Brown said. But, while online services like YouTube struggle to earn enough to pay for the music they use, he didn’t detail terms of Spotify’s recently-inked PRS licence.

Read the full interview after the jump. Also read our recent interview with CEO Daniel Ek

Already, some are hailing Spotify as the saviour of the music business, juxtaposed recently with Sweden’s other big music export, The Pirate Bay. But Spotify is just one exponent of the unlimited-access model. What’s the big idea?

“It’s really about multiple models, a mixed model.The Spotify model is about an access point which is free, supported by advertising. The premium element isn’t just about no-ads; we’re only just out of the blocks, it’s about a platform that will grow with other things in it. We’ve heard ‘content is king’ – there’s a huge amount of amazing content that never reaches the consumer today unless it’s on a torrent. People say you can’t compete with free – Daniel (Ek, CEO), who founded the company, believes you can have a damn good go. Why is it the one that’s buzzing? Part of that is serendipity, timing, and the product is really simple.”

A report last week said Nokia’s big Comes With Music programme has just 23,000 UK subscribers. Share some Spotify metrics…

“I can’t go in to detail on the numbers because we don’t really disclose, but we’ve got in the UK now a million registered users. In a very short space of time, the public has responded pretty well. We are at the beginning of this – we’re got some very good ad sales people in our UK office, they know what they’re doing, and the company knows what it’s doing. We’re in a world now we’re everything’s expected like this (clicks fingers) – so far, so good, but we’ve got a long way to go as a service.”

Digital means fewer CDs on my shelf. It was already threatening the end of record store sales – does all-you-can-eat also mean the end of iTunes?

“No. We’re always looking to ‘what is the model?’ Five percent of the world’s population buys downloads – that may grow. We’ve launched with 7Digital to sell downloads. For every person that says ‘I won’t ever buy a download again’, another person says ‘I’ve found something on Spotify and went and bought the download or CD’. There will always be physical. Daniel feels there will be physical for 10 years, 15 years – I think there’ll always be physical. I’ve seen artists and labels with companies powered by people like Topspin and third-party software tools who are actually seeing bigger sales in physical because they offer more interesting products, they’ve gone just beyond a studio album. We’re not talking about the end of iTunes – we’re talking about a download model that will grow, physical will be with us, radio too; it’s a fragmented consumer base, not one size fits all.”

Although, in the internet world, the unlimited-access idea, supported by ads, seems like a new model, we’ve already had a medium, for decades, where we’ve got free music supported by ads – radio. Are there any learnings you’re taking from radio?

“Yes, there’s music content and the editorialisation of that content. On Spotify today, you fire it up and start listening to something you want to listen to – largely, that isn’t a traditional radio experience. Within Spotify, there’s artist radio – but it’s not our core product offering. So, as we look forward, editorialisation, which radio does extremely well, is something which we can learn from; and localisation; Spotify isn’t local today. What we are able to do very well is … targeting, engagement, really knowing what your target, from an advertising perspective, is doing. We’re coming at it from the online end of the wedge – the traditional broadcast side brings a lot of knowledge about the local listener and editorial.”

So are you interested in partnering with any stations out there? For example, could we see an Absolute Radio-branded version of Spotify?

“You only asked that because I was talking to Clive (Dickens, Absolute’s COO) outside! Ultimately, we are a company that will look at doing the right partnership, across all parts of the business. We announced the 7Digital partnership and we’re hoping to be able to integrate more with them and do interesting things around playlists. If there’s a way of building on our editorial, then I think that’s something that would be interesting.

If the music industry is to profit from all-you-can-eat, it depends on services like yours making enough money to pay it for the tracks. Spotify has three models – free, £0.99 a day and £9.99 a month. What proportion of customers do you have right now and how do you see that shaking out?

“The majority are obviously going to be free at this stage, and we have a nice proportion – a decent proportion, but we can’t disclose numbers – of paid subscribers. That will get more interesting. We’ve got to give people value – everyone’s used to different gauges of that. Just saying ‘(premium) is about no advertising’ isn’t really how it will work. Daniel has already mentioned portability is something we’re looking at – if you get a great execution on a range of portable devices, I think there will be a proportion of the population that will pay for that. There are things like that that will grow out subscriber numbers, but we’re happy with those right now in terms of where we’re supposed to be, and the free access product is showing good growth, so we’re happy so far.”

The free version is the most-used, but it’s only running three audio ads per hour. That’s less than radio – are you going to profit off that?

“We’re on a path to profitability, not ignoring the fact that we’re in the economic meltdown, everyone’s dealing with that, not just us. We’re a ‘new shiny thing’, so we’re probably going to have less audio ads per hour (at the start) but we’ve also got the visual advertising, and we’ve got some really interesting products for media buyers coming through. That’s something we’re strategically growing in our own way and we’re building a good team, so the next 12 months will be interesting.”

I’d imagine the biggest outgoing is royalty fees. You’ve had first-hand experience of this at Pandora, which tried to launch in the UK but pulled the plug last year citing excessive fees. We’ve also seen YouTube block premium music access in the UK and Germany with the same complaint. If Google (NSDQ: GOOG) and Pandora can’t do it, what makes you think Spotify can?

“It’s long and complex and there are too many lawyers involved. They are very different services. Pandora launched in the US under a very different statutory framework, with a central licence and it’s non-on-demand, it’s actually more like radio, you can’t play what you want to play on any given moment. I can’t comment on YouTube, it’s a very different scenario with a big company. Spotify went and got its licences, it’s done those, has very healthy relationships with the rights owners and it’s about growing your userbase until you’re relevant because, until then, so what? Now that we’re doing that successfully, it’s about monetising and driving product development.”

So what kind of licence agreement were you able to strike with PRS For Music?

“You know not to ask me that. It’s private, so I can’t comment, sorry.”

Do you see yourself as profitable this year?

“We’re on track to hit plan, I hope, so I’ll say no more than that.”

You’re confident you can migrate those ad-supported users on to premium, but people have become familiar with ad-supported media – they listen to radio, they watch TV. So what will move them over to pay?

“That’s a really good question. We know from subscription services that have been out there, subscription is still a model that has real legs. It’s not just about giving you the same service with a pricepoint. Spotify isn’t one of these companies that’s going to tell you ‘there’s 20 things we want to do’ – but portability is an obvious one. If you can execute well on the iPhone, for example (Pandora on iPhone has seen seven several million installs), Spotify as a pay service might see a nice subset of that in the UK.

“Content – radio does this very well. I used to buy the Peel Sessions voraciously on vinyl; they’re amazing, better sometimes than the album versions – The Cure session, for example. But ultimately a lot of content that radio created was locked up by radio and the labels not agreeing. I was involved in doing the deal with the Beeb, when I was at Sony (NYSE: SNE), to unlock that content. I’m not seeing enough done with that kind of content. So there’s hugely exciting content, platform development and consumer electronics devices that, if I’m getting that delivered to me well, I as a punter would probably pay for that.”

Spotify doesn’t go down the road of being a social network, has only rudimentary recommendations. Do you see Spotify becoming more social?

“We recently released LibSpotify. For us, it’s about developers building interesting things off the platform. As you go from a service to a platform – have done a great job of becoming many, many things, but I don’t think that’s the path that a company like Spotify will take. It’s about a core experience – others may do interesting things off the platform, that’s where the social features thing will come, I think.”