Newly berthed at technology site The Verge, entertainment industry journalist Greg Sandoval has an early splash with a big story on Spotify’s upcoming licensing renewals.
Specifically the streaming music service’s desire to get “substantial price breaks from the music labels as well as the rights to extend its free pricing tier to mobile devices”. Past experience tells us this will just be the first “music industry sources” leak of many in the coming weeks.
The gist of this story rings true though: the desire by Spotify (2011 losses: $59m) to lower its commitment to pay 70% of its revenues to rightsholders.
Spotify execs have regularly quoted this percentage when being criticised for the level and transparency of artists’ streaming payouts, but the company has also faced questions about whether such a commitment will stymie its hopes of building a sustainable, profitable business in the long-term.
Spotify’s model is based on scale, scale takes time, and with CEO Daniel Ek predicting $500m of rightsholder payments in 2013 alone, that time will cost an awful lot of money at the current rates.
Some thoughts. One: Spotify must be wary of tumbling into a Pandora-style “It pays peanuts to artists and now it wants to pay LESS!” argument – one possible response being that a smaller share of much larger revenues may still mean more money for rightsholders and artists.
Two: competition from Deezer, Google, Microsoft, Apple and now Beats (to name but five) could reduce Spotify’s leverage, especially with several of those using music as a selling point for devices rather than a standalone business model.
Three: Spotify may be picking the right moment to push for more free music on mobile devices – Universal Music, for one, has been making encouraging noises on this score. 2013 may be a good time for Spotify to more-seriously explore mobile advertising, for example.
Four (and most obviously): Spotify is negotiating with its own investors, so a deal that dooms the company would be exceptionally short-sighted even by music industry standards.
And finally: all this speculation reinforces the sense that 2013 is a crucial year for nailing down the rates and business models that will drive the next wave of digital music growth. The pressure to get it right is immense.