Spotify Preparing to Offer Premium-Only Content, Sources Say

Picture of large gates at private residence. Is Spotify finally closing off access to premium users only?
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Spotify will soon be shifting towards a premium-only, ‘gated access’ model, according to several sources speaking in confidence with Digital Music News over the weekend.

The decision will mean that certain releases will only be available to paying Spotify subscribers, or offered for an extremely limited time to non-paying users, according to preliminary details shared.

Sources cautioned that details on what exactly constitutes ‘premium-only’ or ‘gated’ remain unresolved, and a number of variations are in play.  In one scenario, free users would only have access to one or two songs from a high-profile album, while paying subscribers could listen to the entire release without restriction.

Another approach would limit content entirely to premium subscribers, though time-restricted exclusives for paying subscribers are also in play.

One, or several different variations could be rolled out, and sources noted that an ‘early 2016’ transition is the most likely.  That would allow renewal contracts to be solidified, and development teams to finalize the application updates.  But regardless of the timing and exact execution, the underlying goals of the shift, according to one source, would be:

(a) encouraging greater adoption of the paid, premium tier; and

(b) driving more revenue around the most sought-after superstars.

“They want the free users to feel like they’re missing something, not just forced to listen to ads,” one source close to the negotiations relayed.

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The decision comes at an extremely high-pressure moment for Spotify, as major label licenses remain unsigned less than two months ahead of renewal.  “October 1, that’s your renewal date for all three of the majors,” another source relayed, referring to the ‘Big Three’ of Sony Music Entertainment, Warner Music Group, and most importantly, Universal Music Group.

“They do not have signed deals yet, with anyone.”

Separately, sources pointed to an ill-timed departure of  Ken Parks, an important negotiator on the American side.  Just last week, Parks announced his departure from Spotify for Pluto TV, an over-the-top (OTT) television startup.  Separately, Parks’ departure may further highlight Spotify’s sagging IPO and/or exit prospects, as highly-ranked executives typically don’t jump ship right before getting disgustingly rich.

Either way, the move towards ‘gated’ was previously unthinkable among top Spotify executives, but the majors are becoming increasingly agitated about limiting free access.  Both Sony Music Entertainment CEO Doug Morris and Universal Music Group CEO Lucian Grainge have been fiercely rattling the cage against free, with Grainge’s job at one point threatened based on what Vivendi higher-ups perceived as out-of-control catalog devaluation.

Elsewhere, Spotify alternatives could play a different game. That includes Apple Music, which is paid-only and has no plans to introduce an ad-supported free tier.

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“It’s less of a choice now.”

Throughout its existence, Spotify has stubbornly refused to limit catalog access to paying subscribers, despite blow-ups and defections from the likes of Adele, Taylor Swift, and other superstars.  But with less than two months left ahead of critical major label renewals, Spotify now appears willing to acquiesce on this critical sticking point.  “[Spotify CEO Daniel] Ek hates that idea, and I mean hates it, but he may have to give an inch on that one,” another source close to the negotiations relayed.

Image of gate by NannyCam; image of Daniel Ek by Magnus Höij, both licensed under Creative Commons Attribution 2.0 (CC by 2.0).  Graph by DMN, compiled from public Spotify statements.

16 Responses

  1. Anonymous

    Good. Music is more than just something to sell advertising with.

    It’s long past the time for the tech industry to wake up and accept this.

  2. so

    Ek hates the idea primarily because unless YouTube will be subject to the same kind of gating via their Music Key, YouTube will have a significant advantage. The majors need to either (1) impose similar rules on YouTube or (2) do takedowns on user-generated content, keeping up whatever “official” videos they deem to be promo.

  3. Remi Swierczek

    Gated or not gated, with Apple boys or without them, subscriptions will NEVER make music industry!

    Global limit of Ek’s DOPE is at $15B no matter how hard you work this business model.

    Convert all of the Radio and streaming to primitive music store and we can have $100B music industry by 2020.

    Google is our only obstacle and also the best executor.

    Hey Larry, Music can double your Google. Just become central hub of new discovery based music industry!

  4. FarePlay

    You need to remember that these non-music guys who founded Spotify are working from a Napster model. They were to unsophisticated to even look outside of the music model to see how video streaming, not YouTube, but Netflix, HBO, Hulu we’re building profitable businesses that also protected their content developers from bankruptcy.

    The fact the labels didn’t force the issue further shows the lack of understanding on both sides of the negotiation. Think Obama handing the banks all that money without structured demands as to how that money would be spent. I’m sure Paulson was not forthcoming with the obvious.

    Even Apple Music is showing a lack of understanding as to maximizing the business on both sides.

  5. Just A Listner

    I don’t get the problem, is it that they can not charge advertisers enough money to pay for the music stream? If I put up with ADs why is the artist not getting paid?

    • Troglite

      Great question. I sincerely appreciate your desire to understand how your listening habits impact the artists.

      In many ways, in that scenario the listener is truly gaining free access to the song. The only money changing hands is for displaying the ad. If the artist is paid, they only receive a percentage of the fee collected for displaying the ad. The site is not obligated to pay the artist for the true value of the song.

      The problem with that is two fold:
      * online ads aren’t worth much and their value is steadily diminishing. We’re talking fractions of a penny for every page view. Click-through rates continue to plummet and the level of fraud in the market hasn’t been factored in yet (large numbers of computers have been hacked and are used to generate ad traffic for anyone willing to pay the hackers). Even spam volumes have fallen for the first time within the past year because consumers have learned nor to open them.
      * the value of online ads fluctuate wildly. For example, if the ad is displayed on a mobile device, the cost is typically lower.

      So, any compensation an artist receives under a free ad-based compensation program is completely divorced from the value and costs associated with the song itself.

  6. Troglite

    I hope to see a broad range of experimental pricing over the next couple years. There is simply too much variance amongst listening habits to shove everyone into two tiers (free or full access to everything).

    I’m really hoping to see someone offer a mix of single use tokens, sub-catalogs (e.g. by genre, age, or artist), and pay as you go options. Single use tokens seem like a great way to give limited access to new or exclusive releases. If you’re a die hard metal fan… it would be great to have a subscription option that restrictis access to that genre for less than an “all you can eat” subscription (excluding new/special releases). PAYG fills in the gaps and helps move the market away from unlimited subscriptions. Allowing customers to combine these options and change them month to month would provide a lot of flexibility and opportunities for “up sells”.

  7. Manny Sheehan

    Wait…wasn’t the reason that Spotify and Google complained to the DOJ because the labels chose not to license for the ad supported free service? Now Spotify is going to accept a premium only tier? Can the taxpayer get Spotify to pay for the cost of the DOJ investigation?

  8. smg77

    This is just another form of windowing and is dumb. It will just lead to an increase in piracy rates.

  9. P

    Hey, it might lead to more piracy.. sure.. but at least someone is trying something. Even if it’s because the labels are forcing Spotify’s hand to do so. There needs to be compensation for content creators (yes, then this leads to the argument of how much the labels will compensate the artist, but that’s a separate conversation). Someone needs to be taking chance at a streaming model that will consistently generate revenues for the streaming service and the content creators. Should be interesting, if nothing else, to see how this plays out. If piracy increases, then they might back pedal, or they might not. It was a few years ago where the industry assumed piracy rate was 10%. I’m not sure what it is now, but I’m guessing it’s lower. If it goes back up to 10% BUT there is more revenue generated, then it’s still a win for Spotify and the content creators. Sit back and watch this one closely..

  10. Edmonton Guitar Lessons

    For me, singing sad songs often has a way of healing a situation. It gets the hurt out in the open into the light, out of the darkness.

  11. LizaMaySmith

    Thanks for the article. For those who live outside US and want to access Spotify, you can use UnoTelly as I do to get around the geo block.

  12. Won't work

    Those that are willing to pay already do pay. Those who do not pay will simply pirate music.

  13. Patel Nisha

    Got to agree with the labels to some degree here, people shouldn’t expect to receive services like this for free. Spotify also make a good point about growth, limit it to 5h per month. If you’re serious about music or the service you’ll pay up.