Spotify is reportedly making a big push to get record labels to pay to promote artists’ music in its service as a new way to generate revenue.
Despite having nearly double the number of paid subscribers as Apple Music, Spotify still isn’t a profitable company and is looking to the music industry to help it create new revenue streams. Although the talks are still ongoing, you could soon see sponsored songs in your playlists and other areas of the app.
Bloomberg reports that Spotify has already created a paid service for labels called Marquee that alerts users when an artist has a new song or album out. A handful of artists including Justin Bieber and Lil Wayne have already used the service that costs a minimum of $5,000.
Spotify is reportedly pitching a second tool to record labels. Investors are pressuring the company to improve ad sales and show it can be profitable after making $6.1 billion last year. Spotify is currently in talks over long-term music rights with labels which could be complicated by the new advertising projects.
Spotify seeks new revenue
One of the big problems Spotify faces is labels currently get a cut of all of the company’s revenue. Adding a sponsored song tool means some of the money labels pay would come back to them. Spotify is trying to fix this by roping off a pool of money that is set apart from the pool the music industry gets.
Marque and other two-sided marketplace tools could provide hundreds of millions of dollars in additional revenue. Spotify is also discussing charging artists for data about listeners’ habits.
Striking a balance between making money and creating an app dominated by artists with the biggest financial backing will be a hard move to pull off. Apple Music has the benefit of not needing to generate sales advertising revenue and can just promote music it thinks users will like.
Spotify is also looking to podcasts to generate ad revenue. The company recently acquired the website and podcast network The Ringer. Artists aren’t stoked about the podcasts push though because it takes listening time away from music and lowers royalty revenues.