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Spotify Scores Major Licensing Deal Ahead of India Launch

Spotify (NYSE: SPOT) is preparing to enter the Indian market, after talking up the potential for nearly a year now. Ahead of the launch, the company has just inked a major licensing deal with T-Series, one of the most prominent music and film companies in the country. T-Series is known for producing Bollywood music soundtracks and is the largest record label in India. Spotify users will now have access to over 160,000 songs from T-Series' catalog.

That's a huge and crucial step for Spotify as it eyes the world's second-most-populous country.

Image source: Spotify.

Getting ready for launch

Spotify has been slowly inking deals with Indian labels in order to beef up its library of local content, a critical piece of expanding into any new market. Outside of India, there are around 4 million users around the world that listen to Indian music, and "Bollywood" is the most popular search query to find Indian music, according to Spotify.

The news comes shortly after Spotify announced it has hit 200 million monthly active users (MAUs), in line with its fourth-quarter guidance, which called for the company to end 2018 with 199 million to 206 million MAUs. Spotify did not disclose how many premium subscribers it had at year's end, however.

Competition will be fierce. Two of the largest local music services, Saavn and JioMusic, officially merged just last month to create JioSaavn. That deal had been announced in March 2018, and after consolidating, JioSaavn will be an even greater force to reckon with. The company similarly uses a freemium, ad-supported model while hoping to upsell users to its premium subscription, JioSaavn Pro. JioSaavn is offering a 90-day extended trial of JioSaavn Pro to Jio subscribers, a move that Spotify is expected to make, too.

Beyond JioSaavn, Alphabet subsidiary Google has a strong presence in India with Google Play Music and YouTube. The search giant's video-sharing site is the most popular music destination. Apple Music is available in India, but the Mac maker has been struggling to gain traction in the country for years. CEO Tim Cook recently admitted that Apple's revenue growth in India stalled last year.

Emerging market growth comes at a cost

Globally, Apple Music is Spotify's biggest competitor, and offering a free tier is the Swedish company's most important differentiator. That's helped Spotify accelerate growth in emerging markets, where many consumers may be unwilling or unable to pay for premium subscriptions.

At the same time, average revenue per user (ARPU) among premium subscribers has been trending lower, mostly a function of ongoing uptake of family and student plans. Spotify notes that those plans enjoy much stronger retention rates. While Spotify is fine with that trade-off, Rolling Stone reports that record executives consider declining ARPU a "concerning trend."

Spotify prices its premium service differently based on the market, and it's unclear how much it will cost in India. For reference, JioSaavn Pro costs just 99 rupees per month, or less than $1.50. Spotify will have its work cut out in trying to balance its growth aspirations with trying to compete on price, all while satisfying record labels.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of AAPL and Spotify Technology. The Motley Fool owns shares of and recommends GOOGL, GOOG, and AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.

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