Music labels are pressuring Spotify on freemium model

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Spotify freemium model for streaming music

Music labels are reportedly pressured Spotify on its freemium model. Big publishers like Universal are trying to tighten the rules on the streaming service. According to a report from Financial Times in the last round of contract negotiations the big label is aiming to limit the songs available for the free users.

Restricting the freemium model

Universal and most of the other big publishers are questioning the freemium model. It relies on the idea that most of the users of streaming services like Pandora, Spotify and Rhapsody listen for free their favorite songs. In some intervals they need to endure ads and if they want to skip them and use the service offline – they need to pay a subscription of $10 per month.

The big publishers think that if the free users has more restriction they will switch to the paid model. Moves like limiting the time for using the free streaming or the number of songs played in the freemium model. Universal now reportedly is trying to make such move.

And this rumor may have a very solid ground. Universal’s CEO Lucian Grainge publicly stated his concerns with the freemium model in February.

“Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors”, he said last month.

But according to other report from Rolling Stones, Universal is not alone in this venture. Sources told the magazine that the most labels are actually putting such pressure to end the liberal freemium model. Both CEO’s of Sony Music and Warner Music express their doubts about the free streaming.

Pressure for more paid music

The reason for this offensive is simple. The music industry historically defend its strongest revenue source. In the past few years this is the money from legal downloading music. After them comes the sells of CD’s and other.

The revenues from streaming services are actually starting to eclipse the CD sells and are a threat to the downloading revenues which are in a slight decline.

The pressure from the publishers is not from yesterday. They are in clash with the streaming services from day one. The online companies were accused the music labels for a high prices for their music. Most costs for the service for the streaming startups are the license fees which make them hard to be profitable.

If this pressure continues Spotify may change the rules and may even abandon the freemium model. Because it requires a big base of users which are using the service free and small group (usually way bellow 30%) of paid subscribers.

Without the freemium model the user base will diminish significantly. Which means that most people who want to listen music for free will have no alternative and to turn again to the pirate sites. A loss-loss scenario for both streaming services and publishers.

But music labels are hard to deal with, so this rumor is pretty much plausible.

Plausibility for publishers to pressure Spotify to restrict the freemium model – 80%

Image credit: Sorosh Tavakoli

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