At this year’s South by Southwest festival, Aluna (of English electronic duo AlunaGeorge) got to sit around with five of her biggest fans, chatting, Snapchatting — just hanging out.
The session was set up by Spotify, but it wasn’t part of a traditional contest or lottery. The set-up was part of a larger plan Spotify has to help artists use data to identify their most passionate fans. And this push has big implications for the future of making money as a musician, Spotify’s Jim Lucchese tells Business Insider.
Lucchese is the CEO of The Echo Nest, the music data company Spotify acquired in 2014 for a reported $100 million. It’s his job to turn the gargantuan amount of data Spotify has on its users into something the company, and artists, can make money off of.
Since Spotify began to gain prominence, there has been a debate over whether its royalty system pays musicians enough. Critics often cite the small royalty checks musicians get for substantial amounts of streams. Spotify supporters point out that 70% of Spotify’s revenues go to recording and publishing rights, and that Spotify is only one piece of the music industry apparatus that produces revenue for artists.
Regardless, finding new revenue streams for artists is a top priority for the company, Lucchese says. And he thinks a key to unlocking these is tapping into the superfan market.
Spotify looks at various indicators, like length and depth of listening, to find “high-passion” fans, who Lucchese says are more than five times more likely to spend money on things like concerts than the average listener.
The next step is taking advantage of this knowledge, Lucchese explains.
One method Spotify uses is pre-sale ticket emails to superfans. “We’ve done over 100 of these, and the metrics are pretty nuts. The average open rate on these emails we’re sending is 35% … and the click-through rates average about 18%.”
And that goes across the board, Lucchese says, from stadium shows like Ed Sheeran to developing artists like Joywave, and everything in between.
For most artists, Lucchese estimates that the majority of their revenue comes from 10-20% of their fan base. These are the ones that buy concert tickets and merchandise, crucial elements in a music economy where streaming services (like Spotify) don’t usually provide the bulk of an artist’s income.
Lucchese wants artists to see Spotify as a valuable source of data.
And to show the types of insights Spotify can give, he starts listing the different types of superfans Spotify has identified.
Here are three basic categories:
- “Streakers”: people who’ve listened to the artist every day in the last week.
- “Loyalists”: people who listen to an artist more than any other artist when they listen to Spotify.
- “Regulars”: people who listened to an artist a majority of days in the past month.
The thinking is that information like this can help musicians plan their monetisation strategy, and even their touring schedule (by finding out which areas of the country they are most popular in).
But it can go beyond finding out which fans will spend the most money, Lucchese says. It can also help them understand how to grow their fan base.
“If you’re trying to mobilize fans to promote you socially, obviously the more socially-active fans are going to be more valuable,” he says. Spotify can tell an artist which fans to reach out to. It can also show which Spotify playlists are generating an artist the most new fans. The people who made these playlists are valuable nodes an artist can cultivate in different ways.
Streaming music was the the biggest source of revenue for the music industry in the US in 2015, generating $2.4 billion, and contributed to a small overall increase in the revenue of the music industry as a whole.
But Spotify realises that its data can be valuable to artists in addition to royalties, and probably sees a way to counter criticism by becoming a dashboard that helps musicians plan their entire strategy.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.