Spotify claims it will pay Universal $1 billion over next two years

A leaked internal email shows that Spotify is expecting to pay Universal Music Group US$1 billion over the next two years to cover royalties, ad revenue and subscription fees.

The claim raised eyebrows in certain quarters. Universal Music executives say Spotify’s payments are much smaller. Spotify is clearly relying on a major explosive growth to quote such figures. After all, in 2013, the entire streaming sector made $1 billion combined.

In the internal email obtained by the New York Post, Spotify predicts it would account for 11% of Universal's revenue through March 2016 and 16% in the April 2016-March 2017 period. Basing estimates on its projections of its growth rate and Universal's market share, the service also claims it will account for 28% of Universal's "pretax earnings" in the next 12 months and 39% the following 12 months.

Spotify estimates that Universal will make between $7.07 billion and $7.67 billion between March 2015 and March 2017.  Last year, Universal’s recorded music division made $3.89 billion.

Obviously these optimistic figures are being bandied around as Universal CEO Lucian Grainge and Spotify founder Daniel Ek continue heated talks over a new licensing deal. Grainge is, like other record label heads, determined that the era of the “freemium” is over and that digital companies must start charging their customers so they can properly compensate artists and record companies.

Spotify, the largest music streamer in the world, claims it has 60 million users, of which 15 million are paid subscribers. That could rise to 40 million in five years.

Currently, it takes 1,500 streams to equal income from an album’s sale. But if the music industry can successfully change millions and millions of consumers’ mindset from just one service alone to start paying $120 a year to stream, the recorded music industry would be bigger than it ever was.