Do you froth at the simplicity of streaming music without having to pay? Sure you may have to hear the same ad about how you can join Spotify Premium, but nonetheless you can stream for free. It’s a great concept and allows more music to be heard across the world, but it comes at a price.
A short, sweet lesson in economics: “There’s no such thing as a free lunch.” Essentially, it’s impossible for anyone to get something for nothing. The choice you make always has a next, best alternative that you had the possibility of choosing, but didn’t; opportunity cost. Although Spotify may be free for you to stream, it isn’t for Spotify or the artist taking a pay-cut.
Spotify may be the largest streaming service, but that doesn’t mean everything is unicorns and fairy tales. In June, the release of Spotify’s 2016 consolidated statements paints two very distinct pictures. One, being that revenue increased 52% since 2015, to $3.3 billion. Two, losses increased by an astounding 133% to $601.4 million.
Despite the heavy losses, Daniel Ek is staying positive, as well as the rest of the world. With a number of new contracts in the works, you can most likely expect the long-awaited IPO later this year.
Over the past couple months Spotify has been in the works of singing and closing on contract deals that will change the course for artists, and the end-user listeners. Most notably, a long-term deal with Universal Music Group (UMG) and the Merlin Network paved the way for lower royalty payments.
Sony Music and Warmer Music Group are the next in line for finalizing agreements with Spotify for a reduction in royalty payments. Of course, with any large contract many negotiations need to take place.
A source told Reuters,
“The negotiations are at a crossroads. There are still a number of key points that remain to be agreed. If we manage to come to terms on these points, then it could lead to a very quick transactions. If not, any deal would remain at bay.”
In the coming months, it will be interesting to see whether or not Spotify closes the deal with Warner Music Group.
Contracts and Consumers
What exactly do the contracts change for consumers? Simple, these contracts being signed essentially limit exposure to premium albums. For example, UMG will restrict certain Universal albums for a set period of time to premium-only subscribers. Therefore, those that are relying on free to stream Spotify will only have access to per-determined singles.
In a time frame discussed and agreed upon in the contracts, the album full release would then become available to free-stream Spotify accounts that rely on ads to stay afloat.
What End-Users Can Expect
On June 15th, Spotify announced that they had flown past 140 million global monthly active users.More than half of those users aren’t paying, they are utilizing the ad-supported free-stream service.
With that being said, roughly 60% of listeners may miss out on upcoming albums that are deemed premium by its agencies. Listen to The Killers’? The new album Wonderful, Wonderful is scheduled for release in September from UMG. What about The Foo Fighters? Concrete and Gold album is locked and loaded for release also in September through RCA.
These high-profile albums and so many more may face restriction to listeners on free-stream service. It has the possibility to transform into a completely paid exclusive access only in the future.
To Sign-Up for Spotfity Premium, or not?
If you don’t want to miss out on streaming high-profile albums, then it’s wise to cut back on those coffees every week to cough up some dough for Spotify Premium. After all, it’s still cheaper than having to buy every single album or song you enjoy.
Spotify earns more revenue from premium subscribers, so it only makes sense for these contracts and licenses be put in place. After all, it is a business… and for Spotify to stick around it relies on premium listener, why not be one of them?