Universal wants Spotify to tighten leash on freemium model

JC Torres - Mar 22, 2015, 9:45 pm CDT
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Universal wants Spotify to tighten leash on freemium model

There is very little doubt that, at least in the West, digital music has eclipsed sales of physical media like CDs. But it seems that even in the digital land there is a bit of unrest. Streaming services, particularly Spotify, are largely seen to be eating into the numbers of digital downloads, provided by the likes of iTunes. But the Universal Music Group, one of if not the world’s largest music company and who holds a 5 percent stake in Spotify, wants even more and wants Spotify to “urge” its free users to upgrade to paid.

Currently, Spotify’s business model allows free users to have almost unlimited access to music, except for a few caveats like not being able to download music for offline listening or disallowing mobile users to choose which tracks to play next. This free business is largely supported by ads, which have raked in $295 million for music labels in the US last year. In comparison, paid subscriptions amounted to $800 million in that same period. For Universal, however, that isn’t enough to keep artists, and labels, from getting their due.

This problem with profits, vis-a-vis the freemium model, is what Taylor Swift brought into the spotlight last year when she called for boycotting Spotify for not paying artists enough. While Universal has been supportive of Spotify, sources are saying that it is growing dissatisfied at one particular aspect of the business: getting free users to pay up. Of course, logically, the more free users become paid subscribers, the more money can be given to artists and labels. In short, Universal wants Spotify to be more aggressive in “convincing” free users to become paid ones, like curtailing some of their unlimited access.

Like what it did with Taylor Swift, Spotify is calling this line of thinking hogwash. Few would probably contest Spotify’s role in putting music streaming in the headlines, whether for good or for ill, and Spotify believes that it will lose that clout if it suddenly tries to enforce a more limited freemium model. In fact, it believes that it might even hurt the industry more since those users who would have otherwise subscribed would instead flock to pirated copies or YouTube.

That last bit is a particularly sore point for the music industry. Analysts believe that it is YouTube that poses a bigger threat to digital music, especially the streaming business. Although it still focuses on videos, YouTube has increased its musical drive, primarily through music videos. And all of these come for free with barely little or no paid subscriptions at all. YouTube has yet to launch its paid subscription service. In contrast, Apple, who will also soon launch its streaming service, will have no free tier at all.

SOURCE: Financial Times


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