Universal Music Group has been the main music label leveling pressure against Spotify to abandon its free tier, according to sources. Earlier this week, The Verge reported that Apple has been pushing music labels to force Spotify to get rid of its free tier ahead of Apple’s relaunch of its Beats streaming service, a move that has drawn the attention of the Department of Justice and, more formally, the Federal Trade Commission, which is leading the inquiry. Spotify's issues with Apple don't end there — the way Apple runs the App Store has come under scrutiny from the streaming service and others in the industry.
"You would never dry up that revenue stream unless someone is making promises they ought not to be making."
UMG’s disdain for ad-supported streaming services isn’t new. CEO Lucian Grainge said during an interview with Recode that he found free streaming tiers to be unsustainable in the long term, and noted that UMG was fully behind the paid subscription model. "Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors," Grainge told Recode.
Regardless of the pressure, Spotify isn’t married to its free tier, according to sources, but it does strongly believe it drives users to its premium service, and currently has no intentions of giving it up. The free service also draws a significant amount of revenue — much of which goes to the music labels — and attempting to cut off a revenue stream goes against the music labels' usual practices. "You would never dry up that revenue stream unless someone is making promises they ought not to be making," a music industry source said.
But Spotify’s issues with Apple extend far beyond the claim that world’s largest company is trying to convince music labels to kill its free tier. The music streaming service is also not happy about Apple’s App Store tax, according to multiple sources.
Apple charges a 30 percent fee toward any sales through its App Store, and that includes subscription services. That means if Spotify wants to sell its premium subscription service — which usually costs $9.99 a month — through the App Store, it has to raise the price 30 percent higher to $12.99 to pull in the same revenue, while Apple can still offer Beats at a lower price. Spotify and many others in the music industry believe Apple’s App Store tax gives them an unfair advantage over the competition.
"30 percent is fucking bullshit."
To make things worse, Apple’s rules disallow companies from redirecting users to the browser to get the lower subscription price. "Apps that link to external mechanisms for purchases or subscriptions to be used in the app, such as a 'buy' button that goes to a web site to purchase a digital book, will be rejected," Apple wrote in its App Store review guidelines. That means if you tried to sign up for Spotify or Rdio or Tidal through their apps in the App Store, you would think they raised their prices, much like what happened last week. "I get that there’s some administrative burden so they should get some kind of fee, but 30 percent is fucking bullshit," one music industry source said.
"They control iOS to give themselves a price advantage," said another industry source. "Thirty percent doesn't go to any artist, it doesn't go to us, it goes to Apple."
With the world’s largest music label and the world’s largest company both pushing for the end to Spotify’s free tier, it’ll be interesting to see how long Spotify can keep offering the service, or if it even wants to. "The biggest distributor in the world is trying to engineer the music industry to their satisfaction," said a source. "People are going to wake up and not like it."
Spotify and UMG declined to comment. Apple has not yet responded to a request for comment.