[jasode]

>According to the source you posted Spotify has been given favourable license terms

I can see why that report's statement is confusing.

To clarify, that sentence was only comparing Spotify's "better" licensing terms to Rdio. It's about the licensing costs relative to a competitor.

However, in absolute numbers, it's a licensing cost percentage that's still too expensive. Spotify wants to renegotiate the percentage to be less than 50%. Spotify's "better" rate of 55% compared to Rdio 60% did not meet this more favorable threshold to turn a profit.

The "favorable licensing terms" I was talking about was in absolute terms (company profitability) and not relative terms (compared to another competitor).

[k-mcgrady]

I still don't think referring to it as (un)favourable makes sense. It's simply the cost of doing business. If Spotify can't convince enough people to pay them enough money to cover the costs of acquiring the content that's their problem. If I can't afford rent on my shop because not enough customers are coming in that's my problem not the landlords. I can try to renegotiate a lower price as can Spotify but given how much competition they have it'll be difficult and if they can't get a lower price it's not unfair.

[jasode]

>I still don't think referring to it as (un)favourable makes sense. It's simply the cost of doing business. If Spotify can't convince enough people to pay them enough money

Got it and I totally understand exactly what you're saying. It's a matter of perspective and what you said is also true.

That said, let's put some context and boundaries around "unfavorable terms" when it's used to analyze Spotify's financial situation.

If we use an alternative perspective of measuring how Spotify can compete with Apple who has solidified an anchor price[1] of $9.99, it means that Spotify is heavily pressured to not be more expensive than that.

Yes, Spotify could theoretically charge more such as $11.99 to cover the higher licensing percentages of 55% or 58% but they probably feel that it kills their demand curve.

Spotify's pricing has to work in between "free" (piracy) and Apple's $9.99. They don't have the leverage or differentiation to convince consumers to pay $11.99.

So one perspective is that Spotify needs to increase subscription prices to whatever level they need to in order make a profit and to hell with losing millions of customers to Apple's $9.99 deal. Possible eventual outcome is that Spotify dies in bankruptcy because of dwindling user accounts.

The other perspective is that $9.99 is a too much of a consumer-ingrained psychological price so don't bother fighting it. The better chance of survival is to renegotiate with the record labels for more "favorable terms" so it's possible to make a profit at $9.99.

So far, the digital music streaming business can't figure out the money puzzle to make everybody happy. Many consumers already think that $120 a year is too much to pay. At the same time, many artists believe they get too little money[2].

tldr; Spotify can't lose a price war

[1]https://en.wikipedia.org/wiki/Anchoring

[2]http://www.digitalmusicnews.com/2015/09/24/my-song-was-playe...