"Our theory was simple," wrote Daniel Ek, co-founder and CEO of Spotify, in 2014, "offer a terrific free tier, supported by advertising, as a starting point to attract fans and get them in the door."
So what happens after everybody's crossed the threshold?
At the time Ek wrote that post he was reacting to the high-visibility exit of Taylor Swift from his platform over a disagreement (to put it kindly) about the vast catalog of "free" (what the industry refers to as "ad-supported") streaming music it offered. At the time, Spotify had 12.5 million paying users and 37.5 million listening for free — it now has 50 million subscribers and at least 50 million free listeners. Through that growth, the company has vehemently (and in that blog post from Ek, quite dramatically) defended its two-tier "freemium" approach — free streaming with ads and paid subscriptions with no ads — despite repeated criticism from artists over the much lower royalty rates it paid for those ad-supported streams.
No longer. This week, Spotify relented, agreeing to withhold certain albums from the free tier of listeners. For a two-week window following their release dates, certain albums will only be available to paying subscribers. The deal was struck after a two-year-long negotiation with Universal Music, the world's largest record label, over the structure and cost of licensing the label's music. "We know that not every album by every artist should be released the same way," Ek wrote, surprisingly matter-of-fact, yesterday. Billboard reports that in return, Spotify got UMG to agree to lower royalty fees for hitting revenue targets.
"In a market this dynamic," Universal Music chairman and CEO Lucian Grainge wrote* of the deal yesterday (Apr. 4), "one evolving more rapidly than ever before, success requires creative and continual re-evaluation of how best to bring artists' music to fans."