Spotify has started it's periodic licensing renegotiations with the major labels, and this round is shaping up to be a difficult one. In an effort to be profitable, Spotfy is seeking a significant reduction in what it pays to play music along with an extension of it's free music offering to mobile.
Spotify has already started talks with Warner Music Group, sources tell The Verge, and will begin negotiations with Universal and Sony within a couple of weeks. Profitability is an issue for all music streamers, particularly those like Spotify, who rely heavily on a freemium model to attract new users.
Spotify currently has about 20 million signed up, according to the company, but just 5 million of them pay. About 70% of Spotifyâs revenues go to music licensing and 20% to marketing, according to several sources. That leaves just 10% to cover all operational costs including development.
But don't expect the labels to feel sorry for Spotify. After all, late last year the company closed a new $100 million funding round.
PREDICTION: No one wants to see Spotify fail. But we're a year or more away from anyone in power at the major labels admitting to it.