Wednesday April 05, 2017

Music Company Pressures Spotify into Creating Timed Album Release Tiers

Universal Music Group has finally made Spotify capitulate and create paywalls to new music. Spotify will now block free users from playing new albums for a period of two weeks, but they will still allow them to stream the singles that have been released. Spotify has held their ace-in-the-hole until this point as a bargaining chip, but used it to reduce their operating costs to a 50-50 revenue split with Universal Music Group. It is expected that Universal Music Group agreed to give Spotify a better percentage on the music licensing fee per stream in exchange for the creation of the paywall. The paywall is expected to generate more revenue as free users are expected to migrate to the subscription service as they are hooked on Spotify. According to the article, "This is a sensible strategy because subscriptions are lucrative آ— they more than doubled in 2016 to $2.5 billion, and now make up a third of total music revenue and two-thirds of revenue from streaming."

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This is expected to extend to other music publishing companies as Spotify readies for its IPO. Spotify needs to become profitable and lessened streaming fees will help to accomplish this. Personally I'm not sure that this plan is the best plan. There are a lot of people that will still just go back to piracy as I believe that the only reason that they used Spotify was for the free aspect and it contained up to date music. If their buddy has the newest Rammstein track then they want it now; and piracy is a lot cheaper than a subscription. The fact that they endured commercials in the middle of their albums should have been good enough in my opinion. It will be interesting to see how this plays out with actual consumers and not what the CEO thinks will happen.

It’s likely that Spotify is getting a more favorable percentage on the music licensing fees charged by Universal. This would benefit Spotify’s path to profitability and an IPO. Spotify is still negotiating with the remaining two of the "big three" music labels, Sony Music and Warner Music Group. It may use this deal with Universal as a blueprint. Last summer, Spotify accounted for 10% of these labels’ revenue.

Streaming is music’s biggest moneymaker. For the first time in 2016, streaming services such as Spotify, Pandora, and Apple Music made up the majority (51%) of music industry revenue in the US, the Recording Industry Association of America (RIAA) reported recently. Streaming revenue reached $3.9 billion last year, growing an astounding 68% year-over-year (YoY).