Spotify, Universal Music Reach Meaningless Licensing Deal

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In the wake of recent reports that streaming music now generates more revenue for the music industry than any other format, privately held Spotify and Universal Music (owned by Paris-based Vivendi) have agreed on a deal that would allow the music company to reserve certain albums from Spotify’s free tier for a period of two weeks. The album would be available only to paid subscribers during the two-week period.

The music industry has complained for years about Spotify’s free tier, which currently offers the same access to the company’s licensed music as Spotify offers to paid subscribers. There are some limitations on what Spotify features are available to non-subscribers, but that’s it.

For its part, Spotify has 50 million paid subscribers, more than double the number of subscribers Apple Inc. (NASDAQ: AAPL) claims for Apple Music. And Spotify’s free tier is available as long as a user wants it. Spotify’s premium service, like Apple’s, are available on trial basis for 30-days and then users must pay up or cancel.

According to Spotify founder and CEO Daniel Ek, here’s what’s happening:

Starting today [Tuesday, April 4], 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.

The deal is not a good deal for either Spotify or Universal, but it’s probably worse for the record company. By restricting access to paid subscribers, Universal’s artists will lose the revenue that Spotify’s free tier generates because Spotify no longer has to pay for those streams.

Worse for Universal and its artists, the deal covers albums only. Unless you’re closer to 50 years old than 20 years old, albums don’t resonate. The majority of today’s audience became addicted to singles and playlists years ago (thank iPod for that). Not having access to the album won’t affect most listeners, but it will cut into royalty payments.

And who’s going to be the Universal artist to withhold an album and lose the revenue? Taylor Swift already withholds her music from Spotify, but other top acts like Coldplay, Lana Del Rey, and Lil Wayne are far more likely to want to reach the widest audience possible.

Besides, who’ll be the first in line to try it out? A new act or an established one? The former need the widest possible exposure and the latter are looking for maximum revenue. If either group goes along with the new Spotify-Universal deal, it probably fails to achieve its desired goal.

Spotify is expected to file for an initial public offering later this year or early next.