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Spotify’s push into key markets of Russia and South Korea delayed by pandemic

Spotify’s plans to launch in Russia and South Korea came through the company’s recent secured deal with Warner Music Group.
Spotify’s plans to launch in Russia and South Korea came through the company’s recent secured deal with Warner Music Group. (Pixabay)

Spotify is still looking to expand into the markets this year, though the rollout won’t be as soon as originally planned

Spotify Technology SA's long-awaited push into Russia and South Korea, two of the biggest music markets it doesn't yet serve, has been delayed by the coronavirus pandemic, according to people familiar with the situation.

The Swedish music-streaming giant is still looking to expand into the markets this year, though the rollout won't be as soon as originally planned, said the people, who asked not to be identified because the matter is private. With in-person meetings on hold, it's been harder for the company to hammer out the complex arrangements needed to get established in the countries. 

Spotify secured rights to those markets as part of a recent deal with Warner Music Group, one of the world's three major music companies, and also has similar rights from Sony Corp., the people said. And it's been negotiating a new global deal with Universal, the world's largest music company. But Spotify has yet to get rights from some of the local record labels.

The pandemic has hurt the broader music industry. Quarantines and lockdowns have been a boon to video-streaming services such as Netflix Inc., but people are spending less time on the go — when they might listen to music — so audio use is down. Podcasts, a potential growth engine for Spotify, have been especially hard hit. The Stockholm-based company will give an update on its situation when it delivers quarterly results on Wednesday.  

After years of rapid growth in the U.S. and Europe, Spotify is looking to Asia, Russia and Latin America for its next generation of users. Asia and Latin America are home to more than half the world's population, but only account for just 30% of Spotify's 124 million paid subscribers.

They are also among the fastest-growing music markets. Record sales from Latin America grew 17% in 2018, according to the International Federation of the Phonographic Industry, while Asia grew 12%. Europe, by contrast, was essentially flat. The organization, which works for the biggest record labels, has yet to release numbers for 2019.

South Korea and Russia are especially key pieces of territory for Spotify. South Korea is the sixth-largest music market in the world, according to the IFPI, while Russia entered the top 20 this year, said the people.

But Spotify will have to play catch-up, since both countries already have strong local players. Melon is the largest music provider in South Korea, where more than 10 million people already pay for some kind of service. Russia has two strong local players, Yandex and Boom.

Apple Music, Spotify's biggest competitor in the U.S., also operates in both countries. But Apple is small enough in South Korea that it isn't tracked by most analytics companies there. And it's been seeking a new executive to lead its efforts in the Asian country.

Spotify executives have identified Russia and South Korea as two of their biggest targets for expansion, but have been reluctant to commit to a date.

Russia is expected to be first, and the company has been laying the groundwork. Spotify hired a former Facebook executive to lead its Russian office, according to a report in Russian music blog We Rave You. It has also secured office space in South Korea, according to local reports.

Spotify's delayed rollout in two large markets speaks to the thorny nature of music rights. While Spotify has global deal with the three major music companies, they don't always cover all territories or all uses.

When Spotify tried to launch in India without certain rights, it got sued by Warner Music Group, a monthslong legal battle that only ended earlier this year. When it came time to negotiate a new long-term deal with Warner, Spotify wanted to avoid any such headaches, and thus secured rights for Russia and South Korea.

But rights from the major music companies will only get Spotify so far in South Korea. Local repertoire accounts for about 80% of all listening in the market, which means Spotify needs to secure rights from local music companies. Given the characteristics of the market, the company is considering launching with just a paid version of its service there, according to people familiar with the situation. (Elsewhere, Spotify offers paid and free streaming services.)

Many of the same companies that control local record labels and management companies have stakes in local music services, and are thus not inclined to license to Spotify. Melon is owned by Kakao M, one of South Korea's largest record labels, while the company behind Genie, the second largest streaming service, also owns a label.Apple's push into South Korea faced the same hurdles: Many of the country's largest music companies declined to license their songs. 

But Spotify has taken a more measured approach, said the people, in part because it's sensitive to the importance of the Korean music industry around the world. Korean pop has fueled Spotify's success in some Southeast Asian markets.

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