Spotify bolsters free music model as audio ad wars heat up

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Credit: Michael Nagle/Bloomberg

Spotify introduced a new mobile version of its free music service Tuesday – and tweaked a major competitor along the way.

The expanded offering is being rolled out ahead of YouTube's new subscription music product. Google-owned YouTube is aiming to persuade some of its 1.5 billion monthly users to upgrade to a paid version. Spotify already operates the largest paid music service in the world, and is expanding what it offers for free to reach a target of 1 billion users.

Users of Spotify's free mobile app will be able to access many features of the company's paid service, including some playlists on demand, executives said Tuesday at an event in New York. The changes may also help the company keep its lead over Apple Music, the second-largest paid subscription service.

Spotify is looking to capitalize on its success with the "freemium" approach, starting customers off with a no-cost product and then trying to get them to pay for add-ons.

"Others in the industry may not be as familiar with freemium," said Gustav Soderstrom, Spotify's head of research and development. They "may think it involves creating pain for users," he said in a jibe at comments made by YouTube's head of music, Lyor Cohen, about frustrating users into paying for a new paid service.

Spotify, based in Stockholm, uses its free tier to bring in listeners it can convert to paying subscribers. Of the 157 million users of Spotify's music service, 71 million pay a monthly fee.

"We know it's the only way were going to be able to achieve our goal of getting billions of fans," Soderstrom said.

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