Spotify’s Two-Sided Marketplace

Universal Music Group and Spotify Strike a Deal

Spotify (SPOT) has landed a deal with Universal Music Group, the world’s biggest record company. Through the multi-year agreement, Spotify gets streaming rights to Universal Music Group’s extensive catalogue. The label controls about 40% of market share for recorded music in the US. However, the deal is not just a licensing agreement. Universal Music Group has also agreed to pay to use Spotify’s marketing tools, and to work with Spotify’s development team as it builds new marketing features to sell to labels.

Universal has already had success using Spotify’s push notifications and recommendations to boost listens for its artists on the platform. In March, The Weeknd, an artist for Universal, came out with his album, “After Hours.” It gained the highest listener response rate yet from Spotify’s campaigns. The album also hit Number 1 on the Billboard 200 albums chart, in part because of marketing on Spotify.

Investors Urge Spotify to Focus on Consistent Profitability

This deal with UMG is an important step toward Spotify’s goal of becoming a “two-sided marketplace.” This means that, in addition to selling subscriptions to listeners, Spotify wants to make money from selling marketing tools to labels.

Spotify went public two years ago. Since then, it has occasionally made a quarterly profit, but it has largely focused on growth instead of profitability. Investors have been urging the Stockholm-based company to keep its profits more consistent. Many see Spotify’s “two-sided marketplace” approach as a way to do that.

Forging Ahead

This month, Spotify is debuting in Russia and 12 other countries in Eastern Europe. Many local artists in these countries are signed with Universal, and Spotify hopes the new partnership will help it connect with listeners in these new frontiers.

Investors will be closely watching Spotify’s geographical expansion with UMG by its side. They will also be monitoring how Spotify and UMG work together to create new music marketing strategies.

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