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Spotify and Universal At An Impasse Over Freemium

Universal has gradually increased its public criticism of Spotify's 'freemium' tier, while Spotify has vehemently defended it. As the companies' negotiations continue, they also sound to be going…

Streaming continues to grow like a weed — access overtook the sunsetting download for Warner Music Group and both ad- and subscription-supported streaming accounted for more than a fifth of the US’ overall recorded market last year. Meanwhile, disagreements continue between streaming’s biggest company, Spotify, and the world’s largest record label, Universal Music Group. Spotify’s co-founder and CEO Daniel Ek has repeatedly defended its freemium, ad-supported model, while UMG head Lucian Grainge has increasingly criticized the payment that model generates. Indeed, the disparity between revenue generated from subscriptions versus those from ad-supported listening is significant. (Ad-supported streaming accounts for 75 percent of monthly users, but just 10 percent of revenue.)


Earlier today, a story hit the wires that UMG, Sony and Spotify had reached an agreement for Spotify to offer listeners three months of free listening before requiring they transition to subscribers. Maybe they took WMG’s chief executive Stephen Cooper’s advice to avoid burning freemium at the stake before driving people towards piracy? On its face the proposal isn’t preposterous. But no — a source familiar with the negotiations says that the agreement was flatly rejected by Spotify, with the company maintaining freemium’s efficacy at luring listeners. Another source confirmed that discussions had failed to move forward.

Important to remember about this debate is the imminent licensing re-up between UMG and Spotify, rumored to be due for signatures later this summer. UMG will no doubt, as the largest major label, be using those negotiations — which Spotify all but needs in order to operate, considering the depth of its catalog and its active roster — to apply consistent, increasing pressure for Spotify to come to an agreement on freemium.

While UMG and Spotify currently sit at an impasse, the experiments in streaming will keep coming, as they did this week with Rdio’s (pretty confusing) $3.99 tier, which offers ad-free radio and a limited download system (which TechCrunch wisely pointed out could be a play directed at the very promising Indian market). Tidal streamed an hour of Prince’s Rally 4 Peace concert from Baltimore this past Sunday night, and will be streaming a concert from Jay Z next week. Spotify itself is holding a press conference next week, which is rumored to be the unveiling of its video play.