Spotify Is Said to Plan New Version of Free Music Service

(Bloomberg) -- Spotify Technology SA is developing a new version of its free music service, the first big product change since the streaming company went public last week, according to people familiar with the matter.

The company is tweaking the free service to make it easier to use, especially for customers on mobile phones, said the people, who asked not to be identified because the plans are still private. An announcement is expected within a couple weeks.

Spotify needs to attract large numbers of new listeners to satisfy investors who value the newly public company based on user growth. The free service generates customers that the company can steer into its paid offerings. The paid version accounts for less than half of Spotify's customer base, but generated about 90 percent of its 4.09 billion euros in 2017 revenue.

This model has worked well. Stockholm-based Spotify had 157 million users at the end of 2017, including 71 million paid subscribers. That's the most of any online music service. The growth of paid streaming has boosted music industry sales for three years in a row.

With the updated service, free mobile listeners will be able to access playlists more quickly and have more control over what songs they hear on top playlists, mimicking Spotify's ad-free subscription product. The basic package is $9.99 a month.

Spotify expects to reach about 200 million users by the end of the year, and as many as 96 million subscribers, according to a March forecast. Technology giants Amazon.com Inc., Apple Inc. and Alphabet Inc. are all vying for a larger share of the music subscription market.

Musicians Critical

Musicians have criticized Spotify for giving away music for free, and record label executives have asked Spotify to limit what is available to customers who don't pay. The labels scored one victory last year in the latest round of negotiations, convincing Spotify to let artists delay the release of new works on the free service.

Spotify has otherwise resisted calls to change the free service, insisting it needed a compelling offering to compete with YouTube, the world's most popular video site. Users of Spotify's ad-supported free service are unable to listen to every song in the library on-demand, as paid users can, but they can listen to most major playlists and songs on shuffle.

The music industry has been gossiping about Spotify's plans since it invited members of the media to an announcement scheduled for April 24. Some reports have speculated Spotify will be unveiling a speaker. The company has been hiring executives who specialize in hardware at the same time rivals Apple, YouTube parent Alphabet and Amazon are selling new home speakers.

--With assistance from Mark Gurman

To contact the reporter on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum, Alistair Barr

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