Comment Re:Universal wants me to use YouTube more (Score 1) 117
If the ads actually were worth two cents the record labels might be happy. Spotify is currently playing less than one tenth of a cent for song plays by free users, and the amount they pay is 70% of their total ad revenue. They pay about 10 times as much for plays by paying users (the number fluctuates between half a cent and a cent per play, because revenue and the number of plays changes from month to month) which is 70% of their subscription revenue.
Spotify really wants everybody to subscribe, and the labels would also like that. But they're not willing to compromise the free tier too much because they see it as a necessary promotional tool for the paid service. Spotify has been hard-line about not restricting any songs to be only available to paid subscribers, because they believe that would quickly lead to the free service offering only music that nobody wants to hear, and then it would be impossible to get people in the door. (Paid service also gets you ad-free listening, higher quality streams, and the ability to download songs to your mobile device for offline listening. In some countries the free tier has a limit on the number of hours you can listen; they currently enforce no limit in the US.)
The basic problem with the free tier is that advertisers won't pay enough for those listeners to make the model work well. That may change over time if online radio advertising can prove its value, or it may never change. If it does not, I think the eventual endpoint is that services like the free Spotify tier will go away. But I also think the company is right about the current need for it to grow the streaming market, and the record labels just have to deal with the loss of revenue in the short term. That will be a challenge for them, because long term thinking is not a priority in most board rooms.