Spotify’s original licensing deal with the major labels was up months ago and they’ve been negotiating ever since. Today, though, a big breakthrough. After two years of hashing it out, Universal, the biggest label in the world, has signed a new multi-year global licensing deal. From Music Break Weekly:
UMG is believed to have agreed to lower the revenue share of Spotify payouts received by its recorded music operation, but has made sure it’s got some goodies in return.
As suggested by MBW last month, Universal is understood to have set Spotify subscriber growth targets in return for its reduced payment.
Should the streaming company fail to meet these agreed milestones, UMG’s reduction in Spotify revenue share would be postponed (or even potentially reversed).
In addition, and as widely expected, Spotify has acquiesced on something some said it would never do: placing certain music releases exclusively on its premium-only tier.
That last line is the most interesting. It means that we can expect big-name artists to keep their material off Spotify’s free service for an unspecified period of time (two weeks seems to the the answer), a process called “windowing.” This is more like what we see with movies moving through their lifecycle: Theatres>DVDs, pay-per-view, airlines/hotel rooms> premium cable>Netflix>broadcast TV. In the case of music, it appears we’re heading for CDs, vinyl, digital download, premium streaming>free streaming. Bottom line is that users who want access to everything immediately will have to cough up for the monthly fee.
You want the hits? Pay up. And why do I think this is the first step towards making the free experience miserable enough for people to think about signing up for a paid subscription?
Billboard reports it this way:
Spotify has finalized a new, multi-year global license agreement with Universal Music Group that, as expected, gives UMG artists access to a “flexible release policy” — namely, the ability to window new albums for paid users only for a two week period.
The agreement, announced today, represents the end of Spotify’s long-standing policy of granting all of its users — both free and premium alike — access to complete albums on their release dates. In making the announcement, Spotify chairman and CEO Daniel Ek said the new partnership was built on a “mutual love of music” between the companies, and part of an initiative to create more value for artists.
“We will be working together to help break new artists and connect new and established artists with a broadening universe of fans in ways that will wow them both,” said Ek in a statement. “We know that not every album by every artist should be released the same way, and we’ve worked hard with UMG to develop a new, flexible release policy.”
Ek said the flexible release policy for UMG begins immediately, so upcoming albums from the label’s artists could feasibly be affected. UMG artists will be able to choose to keep their albums on premium for two weeks only, before they are released wide, giving paid subscribers a complete picture of the work. Any singles will continue to be available across all tiers, he noted.
Here’s even more analysis from Music Industry Blog (full article here):
What It Means For Spotify And UMG
Firstly, what it means for Spotify. As I have written previously, Spotify needs to create a strong narrative for Wall Street if it is going to IPO successfully. Within that narrative it needs to demonstrate that it is embarking on a journey of change even if the destination is some way off yet. Its relationship with the labels is central to that. Paying out more than 80% of revenue for ‘royalty distribution and other costs’ on a cash flow basis is not something potential investors exactly look upon with unbound enthusiasm. In pure commercial terms Spotify actually pays out round about the same amount (c70%) of revenues to rights holders as Netflix does, but because Netflix owns so much of its own rights it can amortize the costs of them to help generate a net profit while Spotify cannot.
The 2 ways of fixing that are 1) owning copyrights, 2) reducing rates to rights holders (which really means labels as publishers are pushing for higher rates). It is probably too early to flick the switch on the ‘Spotify as a label’ strategy as that would antagonize labels at exactly the wrong time. So reducing rates is the main lever left to pull.
It’s interesting that the movie industry is trying to cut back on its many windows–i.e. the time between theatrical release and the ability to view something at home. And how did things turn out for Tidal? Not so good, right? It’s possible that this move could be a complete and utter bust.
The big question now is whether consumers will take the bait or just get pissed off, go elsewhere and totally ignore the stars that are supposed to lure them to the paid tier. It’s very possible that this move could be a complete and utter bust.
Still, somewhere, Taylor Swift is dancing a joy jig. For now.
The full story can be found here.