Spotify commited to freemium model despite record label fears

23 Mar 2015

Spotify is no stranger to fighting its corner, and it won’t be backing down despite reports that record labels may be unhappy with the digital music service’s freemium model.

Reports in both The Financial Times and Rolling Stone say that labels are beginning to question Spotify’s free music-streaming model, which sees the desktop and mobile app allow customers to play whatever they want with ads between tracks.

Users are encouraged to subscribe to its premium service for a monthly fee, giving them better quality audio and an ad-free experience.

“We need to accelerate the growth of paying subscribers – that’s a slightly more positive way of saying we need to limit free,” a source at a major label told Rolling Stone.

“You can make the subscription service more attractive, with high-resolution sound or exclusive albums, or you can make the free version worse, by limiting the amount of stuff you can listen to.”

But Spotify has hit back at suggestions it should curb its free service, arguing that the offering is key to getting users to invest in a subscription. These users, the company says, are primarily those who previously pirated music or listened via free sites, such as YouTube.

“Any content you restrict on your free service is going to be all over those places where no one pays for content – like piracy,” said Jonathan Prince, Spotify’s global head of communications and public policy.

“We believe that our free tier is a critical element to driving subscriber growth, and, frankly, we’re so committed to the freemium model because we agree so much with the labels that subscribers are key to bringing the industry back to health – and we need the free ‘funnel’ to drive subscription.”

An experiment?

Taylor Swift’s decision to remove her entire discography from Spotify made headline news in November. The ‘Shake it Off’ singing said that she left the platform chiefly because of low payments to the artists and that she was not willing to contribute “her life’s work to an experiment.” In response, company CEO Daniel Ek pointed to the US$2bn that company has paid out in royalties, US$6m of which has gone to Swift.

But despite the controversies, Spotify appears to be growing. In January it was reported that the firm was seeking to raise US$500m in investment which would see it hit a US$6bn-US$7bn valuation.

Meanwhile, Kendrick Lamar’s new album To Pimp a Butterfly last week broke the record for most global streams in a single day. According to Spotify, users played the LP more than 9.6m times on that first day of availability.

Dean Van Nguyen was a contributor to Silicon Republic