Spotify, based in the U.K., is said to have already started negotiations with Warner Music and has plans to meet with Sony and Universal in the weeks ahead. The highly competitive field could have another big player soon if speculation that Apple will launch its own streaming music service later this quarter is true. Spotify has 20 million users globally, but only 5 million are paid subscribers. Currently, 70% of Spotify's revenues go toward paying royalties while 20% pays for customer acquisition costs. The remaining 10% covers other costs including Spotify's technology, which has been praised by listeners. This business model leaves no room for profits which is why the new negotiations are so important, especially if a free tier of service for mobile users is being planned.
Will Spotify be successful in cutting licensing fees? The company already pays among the lowest royalties to artists, so there might not be that much more room to maneuver.
source: TheVerge via Gizmodo