Are UMG, Labels Encouraging Spotify’s 50 Million Free Users To Become Pirates? [UPDATED]

[UPDATED] With today's news of a Spotify, Universal Music Group deal that includes two week windows that make some album releases available only to paid subscribers, this article which we published yesterday is all the more poignant. In it, Ross Pruden, points out that windowing and other exclusives encourage Spotify's 50+ million free users to become music pirates.

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By Ross Pruden from Techdirt

Spotify is pulling the plug on free access to some artists' newest releases, according to The Guardian. Currently, Spotify's 50 million paid users fork over £10/month to play their music offline without ads, but now they're also getting exclusive access to artists' biggest new releases. Meanwhile, Spotify's other 50 million free users have their access suddenly restricted.This has been a major sticking point with some artists and labels for many years. They've long demanded that some music only be available to paying subscribers because the royalties shared there are much higher. With this new setup — which Spotify loudly resisted for years — Spotify benefits by paying fewer royalty fees to record labels, though those fees from free streaming were lower per stream than paid streams anyway. But it's the record labels that pushed this one through:Labels believe the free tier, which pays lower royalties per stream, can serve to cannibalise other audiences, hitting album sales and lowering the incentive to upgrade to premium.We've heard this argument before, and too many times. It's always some iteration of the following (choose one from each line):

Bootlegging / piracy / free access / abundance
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kills / devalues / cannibalizes
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music / movies / books / games / art

Taylor Swift even invoked this argument when she recently pulled her songs from Spotify: "music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It's my opinion that music should not be free." Of course, Swift's fallacy is equating importance & value with rarity. Water, for example, is critically important and valuable… but also far from rare. Rare things are typically valuable because they are rare, but music that can be copied to every hard drive on the planet at no cost? The polar opposite of rare. Will Spotify yanking access to newer releases actually encourage its free users to upgrade to a premium account? Not likely. As you may remember, the Copia Institute published a report on this very topic called The Carrot or The Stick? Innovation vs. Anti-Piracy Enforcement, and its key findingsshould be emailed to the CEOs of every record label:In Sweden, the success of Spotify resulted in a major decline in the file sharing of music on websites like The Pirate Bay. A similar move was not seen in the file sharing of TV shows and movies… until Netflix opened its doors.In response to rights holder complaints, the Korean government pressured popular music subscription service MelOn to double the price of subscriptions. Since the mandated increase, online music sites have seen a drop in the number of subscriptions as consumers move back to unauthorized means of access.Strict criminal penalties in Japan for copyright infringement, enacted in 2012, didn’t prevent a steep 17% decline in CD sales, nor spur rapid adoption of streaming music services. Streaming services are starting to catch on in Japan, but only as their selection and convenience have improved significantly.New Zealand passed the Copyright (Infringing File Sharing) Amendments Act, also known as “Skynet.” After enactment, there was a short-lived drop in illegal downloads over a two-month period (Aug.-Sept. 2011), but after that activity returned to previous levels.Because Spotify's decision affects 50 million users, this move could create huge waves for both Spotify and the music industry as a whole, since it could encourage users to regress from free (and legal) methods to their familiar free (and illegal) methods. Most everyone knows you can type in "Taylor Swift discography torrent" into Google and get years of Taylor Swift's music in minutes without paying Spotify, record labels, or Taylor Swift. So what will happen when 50 million users you've been slowly leading away from piracy suddenly feel like they've been left out in the cold?