Big Record Labels Bailing on Spotify for U.S. Launch? No, Tweets Spotify [UPDATED]

Can Europe’s popular music service survive in the U.S. without the world’s largest labels?



Spotify CEO and co-founder Daniel Ek hit the New Music Seminar in L.A. last week and all but boasted that his streaming music service which carries 7 million users in Europe will launch stateside as early as March.

But in recent days, music industry execs have sounded anything but on-board. Edgar Bronfman, the CEO of publishing behemoth Warner Music Group, told analysts in an Earnings Call yesterday that cloud music services like Spotify aren’t the answer for WMG:

“Free streaming services are clearly not net positive for the industry. And as far as Warner Music’s concerned will not be licensed. So this sort of get all the music you want for free and then we maybe we can–with a few bells and whistles — move you to a premium price strategy is not the kind of approach to business that we will be supporting in the future.”


Chairman and CEO of Universal Music Group, David Renzer was equally unsupportive of Spotify in an interview with the Music Void last night, as he sounded off on streaming services. “It’s difficult to say which of these businesses are going to survive in the long-term. Is Spotify really going to become a money-generator for publishers? Is it going to be launched in North America? We’ll have to see; time will tell.”

More than a roadblock, this sounds like the business equivalent of Pink Floyd’s Wall. The big four–Universal, EMI, Warner, and Sony BMG–hold nearly 80% of the U.S. music market; Spotify would crumble without them. The weirdest part: They’ve all reportedly invested in Spotify. The idea has been that they’re embracing the streaming model that’s made Spotify the biggest digital revenue stream for Universal in Sweden and a huge piracy deterrent elsewhere. So why would chiefs of WMG and Universal be out telling reporters that they wouldn’t participate in streaming services or generally casting aspersions on Spotify’s free version?

They could be positioning themselves for bigger per-track licensing paydays as Ek drops his launch deadline. Renzer hinted that negotiations between Universal and Spotify had yet
to begin and at times sounded as if he were preempting any talks with
demands. “We of course like to negotiate and try to get an advance
ahead of time, because you don’t know if those businesses are going to
be around,” he said. “So you’ll get our attention if you can pay us in
advance for our rights, and we’ll negotiate a license.”


The label heads could also be scared as hell, longing for the bygone era in which they actually sold records and feeling like the return on their investment in Spotify could never equal the control they’d lose to its stream-happy masses. As of 2009, digital revenue represented 35% of all
recorded music revenue in the U.S. and Spotify is looking like an
increasingly viable business model for digital sales.

While the labels’ sudden reluctance isn’t good news for music streaming sites, Spotify founder Daniel Ek predicted it: “When Apple introduced iTunes to the market, people were generally quite skeptical as well. This is a model where we all need to get our heads around it,” he said. And Spotify is going full-steam ahead, as Ek explained to Fast Company recently. “Even though we haven’t launched in the U.S. yet, we continue to develop and improve Spotify, adding new music and features all the time. We look forward to launching in the U.S. with a product that has evolved a lot further than the service we launched initially in Europe.” Among the evolutions is an enhanced music discovery feature, which is now “cross-referencing data collected over millions of users’ listening hours to power recommendations,” according to a company news release. (Sound familiar Pandora?) Ek also told Billboard last week: “We’re in the final stages of setting up…we’re making a huge investment in servers and all the infrastructure here in the U.S.”

Overall, Ek says Spotify’s launch is “looking pretty good,” and he insisted to Billboard the company is more than a free streaming service. But a report by StrategyEye showed that only 4% of Spotify users actually have actually paid subscriptions in its biggest markets, the U.K. and Spain. In Sweden and France, 10% of Spotify users are paying monthly subscriptions, which is enough for Universal International digital-VP Rob Wells to jump on-board. “In all its territories bar two, Spotify pays the labels from a mixture of the money it generates from advertising revenues and subscriptions,” Wells said. “That to me equates to a sustainable business model.” If Spotify can retain a 10% to 12% subscriber rate, Wells believes it’ll be enough to convince majors of revenue-sharing deals. Until then, it sounds like the big four are holding out.


UPDATE: Spotify responds via Twitter: “To be clear WMG is not pulling out of Spotify. Media is taking
things out of context. So don’t worry-be happy:).” Hopefully Spotify has the licensing-rights to reference Bobby McFerrin like that. Last I checked, the singer is published under subsidiaries of EMI, Sony, and WMG.


About the author

Austin Carr writes about design and technology for Fast Company magazine.


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