A report by The Verge outlines Spotify's plans to introduce their free, but ad-supported, music tier onto mobile devices. The report states that Spotify executives will meet with executives at the music label big three - Sony, Warner and Universal - to agree a drop in royalties to artists, as well as to get permission to introduce the free tier onto mobile.
Spotify recently raised $100 million in funding, so cannot claim to be cash poor which won't help their bid to drop royalty payments to artists. Rumours have been circling recently that Apple will introduce a rival to Spotify and Rdio, which will include unlimited music streaming, but will be an iOS-only affair. Spotify already has over 5 million paying customers, with a total user base of over 20 million. Rdio, for contrast, has over 10 million users, of which all pay. While Spotify charges up to £10/month for its premium service, it is unknown whether it is profitable. Sources told The Verge that 70% of the companies revenues go into music royalties, 20% into customer acquisition, which leaves 10% for all other payments, such as staff salaries and Spotify's much-praised technology platforms.
Some artists - including Adele, Coldplay and Taylor Swift - refused to allow their music onto Spotify, at least initially, because of the low royalties, especially when compared to iTunes or Amazon's MP3 service. If artists choose to pull out of Spotify, it will cause irreparable damage to their service, which will ultimately lead to Spotify, it's users, and the artists losing out. It's a tricky line for the industry, support the new wave or crush it before it gains traction.
Spotify is arguing that introducing an ad-supported, free client on mobile will expand the audience that listens to an artists music, as well as expanding Spotify's potential revenue. Labels want their music to be listened to by as many as possible, but disagree with Spotify's low rates, as they did when Jobs first proposed iTunes to them back in the early 00s. Spotify has generated real scale with its service, something the labels are said to look favourably on. Whether they will agree to Spotify's latest proposals, still remains to be seen.