Spotify Sets Up Talks with Major Record Labels to Lower Rates, Bring Free to Mobile
posted Sunday Feb 24, 2013 by Nicholas DiMeo
Spotify, the service I've been following since the beginning, has a couple of key meetings lined up for the next couple of weeks. This could partially be due to their next round of funding coming up, but they also have a bigger picture in mind. Spotify will be talking with the major record labels to renew the licensing agreements in place. Even bigger, they will be looking to ask those record labels for some pretty big price cuts, and will also see if they will be on board to bring free streaming to mobile devices.
Spotify is already speaking with Warner Music on these topics, but will be dealing with Sony and Universal within the next month, according to sources close to the situation. These talks are crucial for the music-streaming service, as the music's big three will either make or break Spotify moving forward. If everything goes well, Spotify could be propelled past several competitors and could really go up against Apple in terms of market share. Currently, Spotify has 5 million paid and 20 million total users across the globe.
As far as the financials, Spotify pays 70% of its revenue towards music-licensing fees and another 20% goes into acquiring new customers. The remaining 10% is left for other costs, like upgrading the platform. This leaves almost nothing for Spotify to really profit from after everything is said and done, which is why the price breaks from the record labels would be very useful. If Spotify can prove increased market share and exposure, the labels might play ball on terms on quantity instead of price.
Another key for the negotiations is going to be the previously mentioned shift to bring the free tier to mobile for more than just a 30-day trial. We've already shown that Spotify users buy more music than those who don't use Spotify, so perhaps there is really something to be said about the power behind the platform. I think that Spotify also has some negotiating power to push both of their objectives with their ability to convert almost 20% of its customers into paid subscribers. We'll have to see if the labels agree, and I will be sure to report back to you either way. Now if only the company would allow you to purchase music as well through their platform.
