This is how the commercial relationship works between the streaming service and the record labels, Rob Wells, the senior vice-president Digital for Universal Music Group International, declared Spotify a very sustainable financial model which was paying out well to the record labels which it has entered into licensing deals with.
Mr Wells disclosed that Spotify is paying Universal Music Group a royalty per user in only two of its territories: the UK and Spain.
In its other four territories: Sweden, Norway, Finland and France, Spotify pays the record labels from the money generated by subscriptions and advertising and not on a per user basis.
“In all its territories bar two, Spotify pays the labels from a mixture of the money it generates from advertising revenues and subscriptions. That to me equates to a sustainable business model,” he said. According to Mr Wells Spotify only needs to convert approximately 10 to 12 per cent of its user base in any one territory into having subscriptions in order to make enough money to pay the record labels in this way.