Following Spotify’s launch in Asia last month, e27 caught up with Sriram Krishnan for an exclusive interview to find out more about the music industry this side of the world. The Spotify Asia Pacific Head of New Markets had some interesting insights to share.

How was Spotify’s recent launch in Malaysia, Singapore and Hong Kong? Can you share some numbers?

Our launches in Hong Kong, Malaysia and Singapore have exceeded our expectations in both the response to the free service as well as subscriptions. We aren’t going to discuss numbers but we can reveal that our launches in these three countries are some of the best market launches we’ve seen at Spotify. A lot of this has got to do with the free service that we offer to music fans in these countries.

Speaking of which, how important is Spotify’s free service to consumers in Asia and for you?

Unfortunately, a lot of the music that is consumed in this part of the world is via illegal, pirated channels. Offering a free service with the world’s music enables fans to obtain their music in a legal and convenient setting whilst contributing positively back to the music industry.

The free service has been instrumental to our success and growth in Asia. Unlike any other music service out here, Spotify offers a truly free service…No gimmicks, no trial period, no caps. Free music, month after month.

How is Spotify contributing to the local music industries in these countries? 

Most of our users report having paid little to nothing for music before joining, which is typical of younger music fans around the world who largely consume their music through poorly controlled, poorly monetized channels. We represent a new, additive revenue stream for the music industry that supports and complements traditional download services. We’ve grown, and in many cases accelerated, digital and traditional business in every market where we’ve launched.

Read also: Music streaming services in Asia, the breakdown

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Help us understand your compensation model better

Over 70 percent of the money Spotify generates via advertising and paid subscription goes back into the music industry.

We have direct agreements with record labels, digital distributors, aggregators and publisher collecting societies, to whom we regularly pay royalties, and who then pay recording artists and songwriters according to their specific contractual agreements.

These agreements are subject to strict confidentiality requirements, but we recommend that artists reach out to their distributors to better understand the specific economics that apply to them.

In general, however, Spotify pays royalties in relation to an artist’s popularity on the service. A popular song or album can generate far more revenue for an artist over time than it historically would have from upfront unit sales.

Do you pay artists directly? 

We do not have direct, contractual relationships with artists. Our relationship is with the record label that will pay the artist in accordance with the relevant recording agreement. In addition, we compensate the collecting societies, who pay composers.

Can independent artists have their content on Spotify?

Absolutely. We have entered into deals with several digital aggregators, including InGrooves, Phonofile, Kontor, IODA, Orchard, and, global rights agency, Merlin Network.

Artists interested in growing their audiences find success by exposing their music to a wide population, and Spotify is the world’s fastest growing music listening platform.

Independent artists can choose the distributor that best suits them to get their music on Spotify. As with the labels, these distributors govern the specifics of how and when royalties pass-through to artists. Each aggregator makes its own policies clear on its website.

How do the economics of this model differ from those of the current single and album sales model? 

If you ask me, the economics of streaming are very different than those of digital downloads. A proper comparison requires considering the long-term value of a consumer. In other words, the question we ask is: how much revenue does a streaming subscriber generate compared with a paying downloader.

Take the US as an example, Spotify premium subscribers are higher value consumers than “downloaders” because they pay at least US$120 annually, whereas average download purchasers spends under US$60 per year on music. So, for instance, if the 40 million paying downloaders in the US became Spotify subscribers, artists would earn twice as much for their music than they currently do.

We sell access to music instead of ownership of individual songs or albums.  Royalties are generated every time a song or album is streamed, compared to the one time a song or album is purchased, and our users spend twice the amount of money on music through subscription than the average downloader. This service speaks to the preferred listening habits of today’s music fans, who already stream well over 15 billion songs per month on the Internet via other means.

Are the labels shareholders? 

Yes, both major and independent labels own a small piece of Spotify. We did this so that the music industry (rights holders) could enjoy a direct upside to the success of our company – and in turn pass this on to artists and composers.

Sriram had earlier mentioned during Spotify’s launch in Singapore that the company has given back US$500 million to the music industry over the past four years and will give back another US$500 million this year. Sean Parker is an investor and a big advocate of Spotify via his involvement with Founders Fund. Find out more about the digital music industry in the IFPI Digital Music Report 2012.

Image Credits: Spotify