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Spotify said to retaliate against Apple's exclusive artists

An escalating battle between Apple Inc and Spotify Ltd is leaving some musicians caught in the crossfire.

[LOS ANGELES] An escalating battle between Apple Inc and Spotify Ltd is leaving some musicians caught in the crossfire.

Spotify has been retaliating against musicians who introduce new material exclusively on rival Apple Music by making their songs harder to find, according to people familiar with the strategy. Artists who have given Apple exclusive access to new music have been told they won't be able to get their tracks on featured playlists once the songs become available on Spotify, said the people, who declined to be identified discussing the steps. 

Those artists have also found their songs buried in the search rankings of Spotify, the world's largest music-streaming service, the people said. Spotify said it doesn't alter search rankings.

Spotify has been using such practices for about a year, one of the people said, though others said the efforts have escalated over the past few months. Artists who have given exclusives to Tidal, the streaming service run by Jay Z, have also been retaliated against, the person said, declining to identify specific musicians.

Biggest Challenger

Apple's music service has emerged as the largest challenger to Spotify over the past year, signing up more than 15 million subscribers since its debut last June, the company said two months ago. Exclusive deals for new music from artists such as Drake, Chance the Rapper and Frank Ocean are central to Apple's strategy. Spotify has more than 30 million subscribers globally.

Apple Music also has ways to promote artists, such as highlighting their songs in its Top Tracks section, giving it ways to play favorites with musicians.

The dustup over exclusives comes at a critical time for Spotify, which is in the midst of renegotiating licensing contracts with the world's biggest record labels. The company is aiming to hold an initial public offering by the end of next year, but needs more favorable long-term agreements with the labels to attract a higher valuation from investors, according to a person familiar with the plans.

The company isn't profitable despite generating more than US$2 billion in revenue, in part because it has to give 55 per cent of the money to labels and an additional cut to publishers.

It's not clear whether major artists like Drake and Ocean have been affected by Spotify's measures, and their representatives didn't respond to questions. In any case, artists of their stature need less help from Spotify to draw attention to their music, emerging acts rely on the service to find new listeners. The company has threatened to use its retaliatory practices on lesser-known artists who introduce music on a Beats One show hosted by DJ Zane Lowe, an architect of Apple's radio service, the people said.

One representative of a singer-songwriter said the client cancelled plans to debut a song on Lowe's show because of concern that the artist would lose promotion from Spotify. The agent asked not to be identified, and that the artist not be named, to avoid damaging relationships with the music-streaming companies.

Lowe, a former BBC radio host, has introduced new tracks from his first day on the air with Beats One, and his show has become an important platform to debut songs worldwide.

Ratcheting Up

Apple and Spotify have been feuding since before Apple Music's debut, and competition between the two ratcheted up again in the last several weeks after Apple proposed changing songwriting royalties in a way that would increase costs for competitors like Spotify by putting its music in a different category that requires a higher rate.

Spotify has also accused Apple of blocking a new version of its iPhone app, the latest volley in an ongoing dispute over Apple's cut of sales from its app store. Apple denied blocking Spotify's app, saying its rival hadn't met its terms of service.

Led by former record executive Jimmy Iovine, Apple Music has kept its strategy flexible to appeal to what an artist wants. In the case of Frank Ocean and Drake, the company paid for exclusives.

With Adele and Beyonce, it agreed to keep the music off its streaming service and initially only make it available for a paid download. The company also has been appealing to artists and industry executives by limiting its streaming service to paying subscribers and not having a free advertising-supported version like Spotify.

Spotify has decried exclusive deals as harmful to musicians, fans and the growing business of music streaming. However, it has sought to make exclusive deals with some artists, such as rock band the 1975, but refused to limit the release to the company's paid service only, as labels and musicians have sought, two of the people said.

Spotify has said a robust free service is needed to attract new users who can eventually become subscribers. Record labels are still pushing Spotify to let artists release music for paying subscribers only, and have yet to sign new long-term deals with the service as a result.

Yet Apple's ability to attract those big exclusives may also be in jeopardy. In an internal memo this week, Lucian Grainge, chief executive officer of Vivendi SA's Universal Music Group, directed the heads of his company's labels to stop giving any music services long-term exclusives, according to two people familiar with the matter. Universal has sold Apple many of its biggest exclusives, including Drake.