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Bloomberg
Spotify Ltd. struck a long-term licensing deal for songs from Vivendi SA’s Universal Music Group, the world’s biggest record label, agreeing to limit free play on some new albums.
Universal artists including Taylor Swift will be able to offer new albums to paid subscribers only for two weeks, with singles available on the free service, the companies said in a statement. Spotify, in turn, can get a break on royalties if it hits certain targets, including some tied to new paying subscribers, according to people with knowledge of the matter who asked not to be identified because the terms aren’t public.
The agreement marks progress of Spotify’s path to going public, yet comes at a price. The company has long pushed labels to offer all of their music on its free, advertising-supported service, arguing listeners would eventually want to pay anyway. But the company missed out on some big releases because of that demand. It gave in amid competition from Apple Music, Tidal and other paid services that had the latest albums from Drake, Swift and others.
The multiyear Universal deal could provide a template for accords with the two other major labels, Warner Music Group and Sony Music Entertainment. Long-term agreements with all three would give potential Spotify investors peace of mind, since the Stockholm-based company has been operating on temporary extensions with all three. As part of the deal, Universal Music will get data from Spotify on the listening patterns of users, helping the label improve its marketing. With more than 50 million subscribers, Spotify is the largest paid music streaming service in the world and one of the most powerful entities in the music business.
Yet the company has also struggled to rein in the fees it pays to music labels. In 2015, such expenses accounted for about 80 percent of revenue, according to filings. Thanks to streaming, the industry has grown for two years in a row, the first time that’s happened since the late 1990s. Services like Spotify now account for more than half of all record industry revenue in the US, according to the Recording Industry Association of America.
Yet record labels and music publishers are still wary. Free streaming services like YouTube and free tier of Spotify account for a lot of listening yet contribute very little to industry revenue. The industry’s health hinges on convincing more free listeners to pay for Spotify, Apple or one of smaller services.