The world's largest premium music streaming platform is ready to play nice with the major labels. Spotify and Universal Music Group announced a new licensing deal on Tuesday where new album releases will be held back from its free ad-supported accounts.
Continue Reading Below
Spotify's popular on-demand music service recently topped 50 million premium subscribers, and they will continue to have access to fresh releases from Universal artists. The two-week window is only for those not paying Spotify, essentially the other half of the service's 100 million active users.
If striking a licensing deal that holds back content for a couple of weeks sounds familiar, it's because it happened to Netflix (NASDAQ: NFLX) when it was leaning mostly on DVD rentals to bring home the bacon. Netflix struck deals where it would hold back from offering a studio's new release for 28 days. Netflix would, in turn, receive the more copies of the DVDs at lower price points.
Image source: Netflix.
Avoiding Netflix's mistakes
Playing nice with content creators didn't pan out for Netflix in 2010. DVD subscribers would go on to peak at roughly 20 million that year. Netflix's audience of mail-based disc renters has gone on to plummet 80% to 4 million since then. Is Spotify also putting its flagship model at risk?
Continue Reading Below
Obviously, the deals that Netflix and rival Redbox struck with studios to hold back on new content weren't what sunk the DVD rental market. Digital distribution was the ultimate disruptor, though it probably didn't help that folks on Netflix didn't have the same kind of access to brand-new discs. Why pay Netflix for a DVD plan when you can just rent them digitally through other online platforms or snap them up in pay-per-view?
Spotify won't suffer the way that Netflix did. Spotify's most lucrative accounts -- the ones paying $9.99 a month for unlimited ad-free streams -- won't be impacted at all by the move. It was different at Netflix where everybody paid the price.
The fear here is that things don't end here. If Spotify is willing to give one label a two-week window, the next label will ask for three weeks or restrict access to pay accounts, too. The model's simplicity will disappear, and it may not be long before even different premium tiers have different access levels. Spotify clearly doesn't want that. It's in a good place, dominating a niche where tech giants would kill to be in its place of market leadership. However, this is also why this move is difficult to swallow. Spotify needs to tread carefully, because a lot of cash-rich companies are just waiting for the first opportunity to pounce after it slips.
10 stocks we like better than Netflix
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Netflix wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of April 3, 2017