Spotify Strives to Secure Cheaper Licensing Deals Ahead of Possible IPO Launch

Digital streaming services that provide music and video to their users are becoming more and more commonplace, and as such it is no surprise that content creators are always looking to partner with the service that with give them the most lucrative deal. This leads to fierce competition between streaming services as they vie for the most popular content, while attempting to keep their own costs down. In an age where artists and content creators are somewhat spoiled for choice, the small differences between different services can often make or break a deal.

Such is the case for the immensely popular music streaming service Spotify, which recently all-but-confirmed that it would be changing a long standing policy in an effort to attract more artists while simultaneously driving down royalty costs. For years, Spotify has made all of the music on their service available for free (albeit with restrictions such as ads in between songs, and albums and playlists always being shuffled), but has declared their intention to roll this policy back in favor of restricting some releases to paying members only. This decision has not gone into effect yet, but it seems quite likely that this move is not only intended to make the service more appealing to artists, but to make Spotify itself more appealing ahead of its public offering (which may be pushed back to 2018) as well.

There are numerous “big name” contenders in the music streaming arena, and all offer slightly different services. The arguably most prevalent paid services besides Spotify would include Google Play Music, and Apple Music, as well as the Jay Z owned streaming service Tidal (readers may recall its borderline hilarious relaunch). Late in 2016, Apple music hit the 20 million subscriber mark, but was still outmatched by Spotify which recently announced that it has more than 50 million paid subscribers. While these numbers are surely impressive, both services must contend with the difficult matter of securing content to keep those subscribers happy.

In the case of Spotify, the service has a well-established track record of decrying exclusive deals with artists, which makes their recent decision to only allow free users access to certain content all the more interesting. Exclusives can be contentious and costly to secure (Chance the Rapper was reportedly paid $500,000 for a two week exclusive release of his recent album Coloring Book on Apple music), and Spotify has previously called the practice of exclusives “bad for artists, bad for consumers, and bad for the whole industry.” 

Spotify’s move towards tiered content is not exactly at odds with the company’s purported ideals, but it undeniably represents a shift towards accepting a more gated style of content delivery. It’s impossible to say just what number crunching occurred behind the scenes to lead Spotify to this decision, but it can be assumed that the results reached were extremely convincing, as Spotify had held out on its “freemium” ideals for the majority of its lifetime as a service. Only time will tell whether Spotify’s decision to cut off some content from free users is designed to cut costs, a first step to promoting exclusive content, or an attempt to appeal to more artists, but Spotify is definitely a company to keep an eye on ahead of its incoming IPO launch.

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