The commercial music streaming service Spotify agrees to pay Universal Music in the neighborhood of $1 billion over the next two years for a licensing fee, subscription fee, music revenue, and ad revenue, in accordance with Spotify’s growth rate and Universal’s market share, The NY Post reported, based on a leaked email.
Spotify is eager to finalize a deal with Universal, before Apple’s new music streaming service is launched this June. The Apple service will cost $10 and they won’t have the Spotify “freemium” model (Coined by Jarid Lukin in 2006, freemium is a pricing strategy by which a product or service is provided free of charge, but then the customer is charged for various features).
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Needless to say, Universal CEO Lucian Grainge is not enamored with Spotify’s “freemium” model.
In fact, Spotify CEO and Founder Daniel Ek is unhappy over the fact that Jimmy Iovine, a former employee of Universal Music, has been hired by Apple and is chummy with his old boss—at Spotify’s expense.
But even without Jimmy Iovine whispering sweet promises, it’s not at all clear that Universal is happy with the offer.
As the No.1 record label in the world, it’s questionable whether Universal will accept a cut from the streaming industry, seeing as the collective, worldwide revenue for those services barely reached $1 billion in 2013.
“Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as investors, ” Universal CEO Lucian Grainge has stated recently.
Still, Spotify boats 60 million active users, with 15 million paying for the premium service, so that when you include ad revenue, they could very well reach $1 billion a year.
