Spotify has reportedly closed its latest funding round, with $350m at an $8bn valuation from investors including Goldman Sachs.
Good timing, too, because the streaming service will soon be facing its toughest challenger yet: Apple. And, as a new report from the US makes clear, the latter company isn’t scared of throwing the odd low blow in the fight.
“The Verge has learned that Apple has been pushing major music labels to force streaming services like Spotify to abandon their free tiers, which will dramatically reduce the competition for Apple’s upcoming offering,” claimed the technology site, citing multiple industry sources.
So tell us something we don’t know. Well, they did that too: the suggestion that both the US Department of Justice AND Federal Trade Commission are getting involved in the question of whether these are anticompetitive business practices.
Oh, and the startling claim that ”Apple offered to pay YouTube’s music licensing fee to Universal Music Group if the label stopped allowing its songs on YouTube”. A remote prospect? So you might think, given that the main route to YouTube for Universal’s catalogue is Vevo, the online video service that counts UMG and YouTube among its co-owners.
If a reference to Universal’s contract with YouTube Music Key for full albums, though, that might make more sense – at least, it would have, before the label’s licensing deal with YouTube on that front.
It’s the broad brush of this story that’s more important though: Spotify has $350m of incoming investment but that’s to support a still-lossmaking streaming business. Apple has a hugely profitable main business (hardware) providing an even bigger war-chest to throw at that rival in the form of artist exclusives and advance payments to labels – and the whispering in the ears that goes along with the latter.
We’ve said this before: Spotify’s free tier has been the most successful path to paid subscriptions – 15m of them – that the music industry has seen. But if labels turn against the model, the alternative funnel will be bundling free trials on hundreds of millions of mobile devices and possibly subsidising a drop in the standard $9.99 monthly subscription price.
That’s something Apple has the device footprint and financial muscle to do, but Spotify does not. There are thus two debates intersecting here: one loud and divisive (but also necessary) argument over whether freemium streaming is a sustainable business model, and another much-quieter discussion about whether tackling that first question will leave Apple in a dominant position once again in the digital music market.
Except this time, it seems, regulators – from the DoJ and FTC in the US to the EC in Europe – are involved from a very early stage. You don’t need us to tell you that the next few months will be a pivotal period for the new music industry.