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SPOTIFY ON THE SPOT

Are Changes Afoot in the House of Ek?

Is Spotify about to jettison “freemium,” focus on subscriptions and put its IPO plans on hold?

Reports from various corners hint this might be the case, suggesting that the impact of Apple Music and its 11m+ subscribers have essentially pulled Spotify into direct competition on the subscription field—and that the streaming leader now recognizes the need to pivot from IPO prep to maintaining and growing its lead in subscribers.

Digital Music News cited anonymous sources within Spotify who suggested a phase-out of all-you-can-eat free streaming was in the works, to be replaced by a model that allowed short free windows for certain releases or enabled non-premium subscribers to hear only selected tracks.

These changes, ostensibly due in early 2016, would make the difference between free and paid Spotify more substantial than the presence of ads.

Spotify’s licensing deals with the labels are up for renewal soon. With competition pressure from Apple (and other services in the marketplace and in the offing), there’s now significant incentive to move away from a free tier deemed “unsustainable” by the licensors. Despite its 20m reported subscribers, Spotify is still said to be struggling with cash flow.

 Dr. Dre’s splashy Apple-exclusive release, which sucked up much of the press oxygen last week, undoubtedly underscored the threat from Cupertino. Especially since Spotify was launching a new-music discovery feature of its own that earned considerably less attention.

It’s been a bumpy period for Spotify. A couple of key execs have ankled Daniel Ek’s stream house (including Content Officer Ken Parks, who reportedly proved vital in negotiations with labels); the EU’s “investigation” into alleged collusion between Apple and the majors over freemium turned up a goose egg; and Taylor Swift issued more public criticism over its treatment of artists. 

This after an extraordinary growth story that had Spotify valued at more than the biggest label group in biz. Has the equation changed so much that Team Ek has back-burnered its IPO prep? 

Of course, Apple Music’s first free trial comes to end in the fall—and it remains to be seen how many of the 11m who signed up will stay on and allow their credit cards to be charged (and how many of those will opt for the pricier family sub). But neither Swift nor anyone else will accuse Tim Cook’s company of having no cash flow (as the singer did of Ek’s outfit), so Apple can afford to wait as it refines the service, which earned mixed-to-poor initial reviews on streaming and iTunes integration. 

Indeed, Apple Music hasn’t even really had a hard launch, with advertising thus far focusing on free Beats 1 (which earned plenty of acclaim) rather than the streaming side. Look for a new cycle of TV spots and other marketing surrounding the VMAs later this month.

The stream wars are truly upon us. Stay tuned.

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