Spotify’s deals with the music labels have long been a barrier to achieving profitability and therefore also a major barrier to an eventual IPO, especially because many of its relationships have been operating on a very short-term basis rather than being locked in longer term. It sounds like there might finally be light at the end of the tunnel, mostly because Spotify is finally caving on perhaps the single biggest sticking point in its relationship with the labels: the differences between the paid and free versions of its service. Spotify has, in fact, steadily eroded those differences, which used to be more significant but now amount mostly to a lack of ads, while the labels have long wanted Spotify to increase the differentiation between the two as a way to push users to the paid their and therefore compensate artists at a higher rate for their music. As I argue in the Streaming is Saving Music narrative, it’s not really streaming as a whole but more narrowly paid streaming which is helping the music industry thrive at present, and so those labels have every incentive to push that tier of service. On the other hand, Spotify has used that free tier very effectively as a funnel to create eventual paid subscribers, and the labels also want Spotify to IPO so they can get a return on their investments, which is why they’re finally showing some willingness to compromise too.
via Financial Times