Spotify's Student Discounts Hurting Earnings AND User Numbers According to University of Georgia Study

Those up on the numbers know not to believe the hype...despite the constant media coverage devoted to Spotify and streaming as the future of the music industry, if you've read up on the subject you'll know that the service has yet to turn a profit. David Lowery, a noted critic of the streaming frontier and professor at the University of Georgia's music business program, has published a new report suggesting that Spotify in particular is shooting itself in the foot. Apparently special rates offered to college students aren't helping the bottom line.

Lowery polled students at the University of Georgia during both 2014 and 2015 to see how Spotify's special rates affected use of the service. Surprisingly, the special $4.99 rate hadn't attracted more users to the service...but seemed to drive them away in fact (a case of correlation not equalling causation, but regardless...numbers are down). Less surprisingly, savvy students are taking advantage of the system by canceling their original $9.99 subscriptions and resigning up at the $4.99 rate.

His data (presented in Digital Music News) shows that the number of $4.99 subscribers did in fact increase from one year to the next, jumping from 17.68 percent to 25.37 percent of those polled. As one would imagine, that decreased the number of free users (those who listen to the service for free but put up with occasional advertisements) shrank from 52.53 percent to 46.34 percent during the span. What Spotify probably didn't see coming was the $9.99 subscription rate slipping from 16.16 percent to 10.24 percent. So the boost in $4.99 buyers didn't come from the previously free users...it seems to have come from the $9.99 pool. The proof? The rate of students who reported not using Spotify at all rose from 13.64 percent to 18.05 percent.

Now let's imagine that this study features a mere 100 students, for simplicity's sake. If that were the case, Spotify would have been making roughly $249.66 a month from the sample during 2014, compared to $228.90 during 2015. The fact that this is happening while Spotify is actually losing customers is adding insult to injury.

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