| 16 Jun 2024
Spotify under duress to put harsher limits on free service

MUMBAI: On Friday, 20 March, it was revealed to Financial Times that Universal Music Group is leveraging its current contract negotiations with Spotify, pressuring the music streaming service to put harsher limits on its free service. Universal is hopeful that such a move would convert more Spotify free users into $10 per month paid subscriptions.

A source at Universal Music told the Financial Times (FT), “The market data really speaks for itself. It is clear that the key to success for artists, consumers and Spotify alike is developing an offering that drives more free users to the paid tier.”

Spotify, Head of Nordicana Region Jonathan Foster, told FT, “Without free, pay has never succeeded. We’re one of the greenest shoots of growth in the industry. We don’t want to destabilise that. We think that this model works.” A spokesperson for the company also told Financial Times that the music streaming service is monetising those people who have not been monetised before.

In a previous report Spotify stated that, by bringing listeners into its free, ad-supported tier, it migrates them away from piracy and less monetised platforms, and allows them to generate far greater royalties than they were before. Once they are using Spotify’s free tier subscription, the service drives users to its premium subscription tier. Spotify pays out nearly 70 per cent of its total revenue to rights holders, while retaining approximately 30 per cent. That 70 per cent is split amongst the rights holders in accordance with the popularity of their music on the service. The label or publisher then divides these royalties and accounts to each artist depending on their individual deals.

The paid service would help artists earn more through royalties. Of its 60 million subscribers, 45 million are free subscribers and 15 million are paid for, which is six times more than the 2.5 million paid users it had back in September 2010. Right now, free subscribers do not get to choose the music they want to listen to, while paid subscribers have that privilege. So, when a paid subscriber opts to listen to a track by an artist signed under a label, the label generates revenue.

Universal Music Group, also handles distribution for Big Machine Records, under which Taylor Swift is currently signed. Almost a year ago, the Grammy winning country and pop artist pulled out her entire catalogue from Spotify.

At the Recode conference last month, Universal Music Group, Chairman and Chief Executive Officer Lucian Grainge publicly stated, “Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors.”

In agreement with Universal music, a source at a major label told Rolling Stone, “We need to accelerate the growth of paying subscribers — that is a slightly more positive way of saying we need to limit free. You can make the subscription service more attractive, with high-resolution sound or exclusive albums, or you can make the free version worse, by limiting the amount of stuff you can listen to.”

In a recent report, it was stated that Universal Music Group's full-year revenues for 2014, dipped by 6.7 per cent, down to €4.56 billion. However, the digital sales, which include music streaming, were only down 2.8 per cent to €1.64bn.

The Recording Industry Association of America recently announced that 7.7 million paying subscribers across all platforms accounted for $800 million in revenue for labels, and ad-supported streaming accounted for $295 million in revenue.