Spotify Is Proving a Success for Labels

Despite dooms-day scenarios from music executives and all manner of reports showing just how hard the music industry is having it, it turns out that there are actual, viable ways of making money with the new tools the digital landscape has provided. What's more, they can still make money from actually selling music, and this comes from a major label executive in the UK who says that Spotify, the popular music streaming service, is making the labels’ money.

Rob Wells, senior vice-president, Digital for Universal Music Group International, told the Telegraph that Spotify is now a stable revenue source for music labels and is bringing in a tidy sum in most countries where it operates. Spotify is available in six countries in Europe at the moment, with a US launch on hold for the time being. Wells said that only in the UK and Spain, Spotify pays for every stream, elsewhere, in Sweden, Norway, Finland and France, the company pays the labels in a revenue-sharing deal.

“In all its territories bar two, Spotify pays the labels from a mixture of the money it generates from advertising revenues and subscriptions. That to me equates to a sustainable business model,” he told the Telegraph.

The reason why the labels insist on a per-stream license fee in the two countries is that subscription rates have been lower there than in other territories resulting in smaller profits. The exec says that only about 10 to 12 percent of the user base has to subscribe to the service for it to become profitable enough to move to the alternate free system.

In the UK, for example, Spotify is the victim of its own success. Some two million people use Spotify there every month but a small percentage of those pay for the £9.99 per month subscription, preferring to use the free, ad-supported version instead. In fact, Spotify has reverted to an invite-only model in the country for the past few months to control the rate at which new users sign up.