Spotify, the successful European company (and our #15 most innovative company of the year), which plans to enter the U.S. market this year, offers up free streaming of music—great for users, but it’s not helping the industry, according to fresh research firm NPD Group. Consumers using free streaming music sites that let them choose any song at any time make 13% fewer purchases of digital music, NPD says.
Six million European users already take advantage of Spotify’s collection of six million tracks, which can be streamed for free. Premium users who sign on for $14 a month can pull music to their smartphones to listen anywhere.
By Contrast, Pandora and other online radio services, which offer ad-supported music and don’t allow users to choose specific songs, do drive music sales: Radio sites see a 41% increase in download sales.
It would seem to make sense: If you get free music on demand, you're not going to open your wallet to then pay for it.
Not so, Spotify tells FastCompany.com. "There is other data out there to prove the exact opposite of that report," a spokesman says, pointing to a report in Billboard magazine in which Scott Cohen, the London-based founder/VP of The Orchard, says Spotify is already boosting income for labels in two ways: "First, the more tracks are streamed on Spotify the more downloads occur on other services," Cohen tells Billboard. "We are not seeing any cannibalization."
Additionally, "Spotify is not just about downloads," the company spokesman adds. "We're generating a mixture of revenue which includes downloads but also ad sales and subscriptions both of which are growing rapidly."
Expect a bit more of this back and forth as Spotify continues negotiations with major U.S. labels for content, the linchpin of their launch here.