Streaming service Spotify has all its music available to both free and paid users. Now as a new clause in the upcoming licensing deals with music labels, Spotify has agreed to restrict some new releases to its premium tier.
Spotify is a music, podcast, and video streaming service that launched on October 7th, 2008. Its business model consists of free basic services, while additional features are offered via paid subscriptions. Spotify makes its earnings by charging for premium streaming subscriptions to users and selling advertising placements to third parties.
As reported by Engadget, Spotify’s contracts with Universal, Sony, and Warner, which collectively make up the bulk of its library, have been in instability for some time. The company growth and the influence of music streaming in the industry have prompted labels to demand higher rates. If Spotify accepts these terms, it would hurt its business model, which is yet to reach profitability.
According to Cnet, Spotify is in talks with the major record labels to lower the royalty fees that they pay for their music, in exchanged, Spotify would for a limited time restrict access to major album releases to paid subscribers. These deals could help Spotify to stay much closer to their initial public offering. In the last few years, consumers have shifted from digital downloads to memberships that charge a monthly fee for unlimited access millions of songs.
According to The Verge, Spotify has boasted 50 million paying subscribers earlier this month, with another 50 million free users who use the service at least once a month. It seems that Apple Music and Jay Z’s Tidal hasn’t stopped Spotify’s growth. However, big releases from Rihanna, Drake, Beyonce, Kayne West, Chance the Rapper, and Frank Ocean arrived first on either Apple Music or Tidal, while Spotify users had to find other alternatives in order to listen to the new releases. With this change, Spotify shows goodwill with potential investors, as well as the big three record labels that all have minority stakes in the company and an interest in seeing its initial public offering do well.