Nowadays we all know someone who only listens to music from streaming music platforms, in many cases even us!
However, if you are one of Spotify’s more than 50 million free users you will not like this deal.
As we all know, Spotify’s advertising-supported model makes less money and royalties for musicians than Apple Music, Tidal and other subscription-only platforms. To continue to have the same content as these other services, Spotify has been working on agreements with the three major music industry record companies – Universal Music Group, Warner Music Group and Sony Music Group.
After two years of on-and-off negotiations, Spotify and Universal Music Group have finally reached an agreement that will give the music industry more flexibility in how new albums are streamed.
This global multiyear agreement will allow several artists such as Martin Garrix, Coldplay, U2, Kungs, Avicii, and more, the possibility to withhold new albums for two weeks from Spotify’s free tier. This way, only subscribers can have access to the albums, although the singles are available to all Spotify users.
In making the announcement, Daniel Ek, Chairman and CEO of Spotify, said:
“This partnership is built on a mutual love of music, creating value for artists and delivering for fans. We will be working together to help break new artists and connect new and established artists with a broadening universe of fans in ways that will wow them both. We know that not every album by every artist should be released the same way, and we’ve worked hard with UMG to develop a new, flexible release policy. Starting today, Universal artists can choose to release new albums on premium only for two weeks, offering subscribers an earlier chance to explore the complete creative work, while the singles are available across Spotify for all our listeners to enjoy.”
In exchange, Spotify will have a reduction in royalty rates. Although they are not allowed to discuss confidential terms, some people claim that this agreement allows the company to cut the royalties paid to Universal from 55 to 52 percent.
In a world where streaming accounts for most of the revenue, however, services like YouTube and the free tier of Spotify contribute very little to the revenue of the industry. Record labels and music publishers remain cautious.
Lucian Grainge, Chairman and CEO of Universal Music Group, said:
“Eight years ago, when streaming was a welcome but small source of revenue, UMG embraced partners like Spotify as a way to help return music to a vibrant future benefitting the entire ecosystem. Working hand in hand with these digital services brought us the industry’s first real growth in nearly two decades. Today, streaming represents the majority of the business. Our challenge is transforming that upturn into sustainable growth. In a market this dynamic, one evolving more rapidly than ever before, success requires creative and continual re-evaluation of how best to bring artists’ music to fans. At UMG, we’ve not only reimagined distribution models and technologies, but entire business models. The only constants must be great music and fair compensation for artists and creators. To that end, the long-term success of Spotify, and others like it, is essential to the ecosystem’s enduring health.”
After this agreement, it is very likely that deals will be reached with other major record companies very soon.