Giving away what you used to call so precious

Jamie mentioned this in a comment on the White Lies story, and I think it's worthy of a bit more attention: Orlowski on Spotify and the mystery of the music business suddenly embracing free:

The business looks down on this free and easy access to its assets quite understandably. Because if it's all free, then investment in making sound recordings will evaporate. Only fools invest in businesses which aren't going to make any money. You're following, I hope.

So to compete with businesses which don't make any money and give away free music, they're backing a business which doesn't make any money, and gives away music for free. It's genius.

[...]

The more Spotify grows, increasing its music catalogue as it goes along, the fewer recordings you have to buy. The music you want to hear and the playlists are "in the cloud", for free. If you could be assured the free lemonade would never stop, you may as well get rid of the CDs you already have now, and will never have to be pay for a sound recording again.

The rival lemonade stands don't have to pay for the music they offer, while Spotify does. So keeping the Spotify tap turned on costs the music business an enormous amount of money. Last week, at the Great Escape music event in Brighton, we learned that Spotify has very little realistic prospect of making any money either.

The labels, you see, own 30% of Spotify through equity investments, so while it's a third party, a third of it isn't.

So, having built Spotify - and spent just five grand on marketing - how are they going to make money?

[In converstaion with Music Ally's Paul Brindley, Spotify's Daniel] Ek's three big come-ons for the paid service were social features, a download service that interoperated with your phone or iPod, and exclusives.

Hmm. Really? Is that going to make anyone start to hand over money for something being given away for free?

It turns out there's a plan B:

"We want to hand out consumer data we have to give to labels so they can target consumers better and communicate better."

Ah. Spammify. No wonder the labels were happy to put cash in for chunks of Spotify - there's no need for that tiresome (alleged) RIAA-requesting-CBS-for-LastFM data if you own a chunk of the servers where the information is being held.

The trouble is, as Orlowski points out, what you get is a lot of data about people who like free music. Do the labels really need to find out a bunch of stuff about people who are setting the market value of individual tracks closer and closer to zero? It's like filling your little black book with the names of people who've told you "not if you're the last man on Earth", isn't it?