If Spotify ends free streaming, 2015 will be the companies last year

At this current point in time, Spotify has it's agreements in place regarding free streaming until some point in 2015. At this point, they will have to renew the contract - presumably for considerably more than what they are currently paying - or go entirely paid for. If it does this, they will be entirely pricing themselves out of existence.

Spotify do not pay per stream or play, as it is commonly thought. They pay using a calculation system that takes into account how well they are doing overall, their monthly revenue. This is times by the artist's spotify streams/total spotify streams. This is then multiplied by up to roughly 70%, to go to the record label or artist - this depends on each artists royalty rate. THEN, you get the final figure.

The first pitfall of this system is that if someone else releases a hugely popular album, you are shit out of luck. Due to their being more streams of that other album or albums, you get less. So essentially, the music industry is penalising itself as it thrives. Secondly, and rather important to this article, is that if the industry takes a dip overall, you get less too.

This is key. If Spotify does not renew it's contracts for free streaming, then there revenues will plummet, as there will be fewer ad listeners. Personally, I feel they should just charge £1 for ad-free listening instead of £5, as you would get tenfold subscribing, which would be twice the profit. Who wouldn't pay such a small fee if they used it regularly?

I frankly cannot see this a wise business model. They will miss out on new users that may convert to the paid option, and will completely alienate some already paying members. They do make a lot of money from the free option, too, it must be remembered - the ad companies pay depending on the audience, which is huge at the moment.

It was all much more simpler when everything was physical, wasn't it?

Source: Spotify