Spotify and Universal sign new licensing deal, will partner on development of marketing tools

London, UK - July 31, 2018: The buttons of the music streaming app Spotify, surrounded by Podcasts, Apple Music, Facebook and other apps on the screen of an iPhone.
London, UK - July 31, 2018: The buttons of the music streaming app Spotify, surrounded by Podcasts, Apple Music, Facebook and other apps on the screen of an iPhone.
Sarah Perez

Spotify this morning announced a global, multi-year licensing agreement with Universal Music Group, which secures the label's catalog for streaming rights but also signs it on to be an early adopter of Spotify's future products and provide feedback to Spotify's development team as those products are being built.

Deal terms were not disclosed, but "multi-year" agreements like this would last at least two years, if not three.

The agreement brings on Universal to Spotify's "two-sided marketplace" -- a term Spotify CEO Daniel Ek has been using for years to describe the company's overall strategy. Essentially, its plan is to generate revenue not only from the service's paying subscribers and advertising, but also from the artists and labels that pay for tools to reach those music fans.

Under this umbrella, Spotify this year introduced the launch of Marquee, a tool for promoting new releases which delivers full-screen, sponsored recommendations to both free users and paid subscribers during release week and beyond. These Marquee-led campaigns reportedly once cost a minimum of $5,000, according to confidential documents Rolling Stone acquired late last year. (A report says the floor was later abandoned).

Of course, Spotify's efforts to sell marketing tools only work if Spotify can convince labels to use them. During negotiations with labels earlier this year, Bloomberg reported things on that front were not going well. The three major labels were balking at Spotify's efforts to get them paying for more tools for advertising their artists' music in the Spotify app, which complicated negotiations. In a nutshell, the labels view the tools as just new ways for Spotify to cut into the labels' royalty payments -- and perhaps, not even all that necessary, as Spotify offers some free promotion of new music today.

There were other concerns as well, including those from indies who felt the ability to promote music would be only available to those with the most money. The major labels also feared a promotional "war" of sorts could be started, where they would each have to continually up their spend in order to get their own artists to the top of Spotify's charts.

Spotify's ability to close a deal with Universal, in this context, is significant, as it indicates Spotify has managed to gain support for its two-sided marketplace concept from a key figure in the industry. And not only will Universal likely agree to use these tools, pushing Spotify's revenue higher, it will also help Spotify design them by guiding the process with its feedback.

Where this deal leaves Spotify's artists themselves is far less clear. Spotify used to market its tools to musicians and indies as a way to help them better compete against the majors, after all. It even once tested a tool that would allow artists to upload their tracks directly to Spotify's platform. The negative reaction from the majors -- Universal included -- led Spotify to cancel those plans. And now that music giant will have even more of a say in what Spotify does next.

"With this agreement, UMG and Spotify are more aligned than ever in our commitment to ensuring the entire music ecosystem thrives and reaches new audiences around the globe," said Sir Lucian Grainge, chairman and CEO of Universal Music Group, in a statement. "Given our commitment to innovation and early adoption of music technologies, and Spotify’s leadership in the development of forward-thinking tools, our new partnership will provide our artists with new and powerful opportunities to connect with fans on Spotify’s growing platform. Working together, our teams will expand and accelerate our collaborative efforts to deliver artist-focused initiatives, strategic marketing campaigns and new offerings to provide exciting new experiences for fans worldwide."

"From their early experimentation with Marquee, to testing new experiences like Canvas, Universal Music Group has been an important partner in helping to shape the development of our marketing tools," Daniel Ek, chairman & CEO of Spotify, said. "With today’s announcement, we will expand on this level of early stage innovation and further strengthen our partnership and shared vision for helping advance artists at all stages of their careers," he continued.

"We've said all along, the goal of our Marketplace strategy is to harness Spotify’s ability to connect artists with fans on a scale that has never before existed and bring new opportunities to the industry. Together, we look forward to reinvesting in and building new tools and offerings for artists around the world."

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