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Spotify Unveils Upgrades for Free Users, Sets Sights On Putting a Dent in Radio's Appeal

It’s been a big month for the global leader in music streaming: Three weeks after going public via a direct listing on the New York Stock Exchange, Spotify held an event today (April 24) at Manhattan’s Gramercy Theater to unveil upgrades and improvements to the free, ad-supported tier of its streaming service.

During an hour-long presentation, Spotify’s chief R&D officer Gustav Söderström, vp product development Babar Zafar and global head of creator services Troy Carter outlined the company’s multi-pronged upgrades, which give its 90 million-plus "freemium" users around the global greater control and a simpler interface when browsing and listening to the service’s 35 million licensed tracks, as well as new controls to help them manage the data that streaming takes up on mobile phones.

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Specifically, Spotify is giving freemium users access to 15 playlists -- including its algorithmic personalized playlists like Discover Weekly and daily mixes, as well as relevant editorial playlists like RapCaviar based on listeners’ tastes -- that can be played in any order with no skips, and will include brand new releases as well. (Previously, free users were limited to a shuffle mode.) In addition, an overhaul of users’ home pages simplifies and strips down the interface, offering relevant playlists and recommendations right away, which will improve in accuracy, the company says, the more users listen, like and follow artists and songs.

"Previously, personalization took too long to kick in," Zafar said, noting that new users who download the app will be asked right away to identify their favorite artists, meaning that recommendations begin immediately, rather than gradually after a period of listening activity. "We have accelerated our ability to understand what people want to hear."

That also means an upgrade to how playlists are made and created, with an eye towards taking the appeal of radio out of the equation. Zafar introduced a tool called "assisted playlisting," that allows users to type in an event or mood -- "birthday party" was the example used -- and receive "contextual recommendations relevant to your music tastes," which will be continually-updated as users add songs to the playlist.

In the redesign, the "radio" tab has disappeared, replaced by a "premium" tab that gives users an overview of what they can expect from the premium experience. Söderström and Zafar both emphasized that, with the tweaks to how playlists are created, Spotify can now offer "a better solution for that specific use case, which is, 'I want to easily play music,'" as Zafar put it. Addressing a question about advertising, which will remain largely the same on the free tier, Söderström said, "The reason we have the ads in there, just as terrestrial radio, is to fund this tier and to monetize it. But," he added, "creators actually get paid."

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Carter, in his remarks, revealed that Spotify has paid out €8 billion to rights holders (appx $9.8 billion at today's conversion rate), and put a more finely-tuned point on what the company can accomplish with the upgrade. "Our ad-supported service functions like the biggest radio station in the world," he said, noting that "10 billion times a month, listeners across both Spotify and Spotify premium stream a new artist they’ve never heard before." He also pointed out that 71 percent of Spotify’s monthly active users -- 157 million worldwide -- are under the age of 34. "This makes the free product that much more important for artists," Carter said. "There are millions of music fans who can’t afford $9.99 a month. But that doesn’t mean they aren’t music fans. Artists can’t afford to ignore that audience."

Overall, Söderström emphasized the growth opportunities, both for Spotify itself and for the music industry at large. And he added that, with 7 billion people in the world, 2 billion of whom are on social media and 1.3 billion of whom own smart phones, it's noteworthy that no streaming service has cracked the 100 million mark of paid subscribers.

"We don’t think of ourselves as the R&D department of Spotify, we think of ourselves as the R&D department of the music industry," he said, emphasizing that the service is still small when compared to the scale of broadcast radio, which does not pay royalties in the United States. "We believe the music industry is way too small," he added. "We believe it’s going to be bigger than it ever was before."

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In a press release accompanying the announcement, Zafar added, "This is the beginning of an evolution for Spotify and we will continue to make improvements that mirror our customers’ needs. This is not only about giving users a more customized free experience from the day they sign up, but giving them more control over their listening experience so they can easily find and stream their favorites anytime, from anywhere."

So what comes next? Spotify said the new freemium experience will be rolling out globally on Apple and Android to all markets in the coming weeks. And, though the company is in a "quiet period" meaning that its executives were not able to speak about financials related to its direct listing or future products on the way, Söderström did reveal that Spotify was investing in voice technology, which he called "a big opportunity."

"We’re focusing on scale," Carter said. "The bigger we get, the more we pay out to rights holders."

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