Spotify Technology SA is betting that controlled, licensed AI-generated music will generate new revenue streams for the company and artists alike, as co-CEO Alex Norström argued that regulated products are a better alternative to the unregulated AI "slop" flooding streaming platforms.
"There's a lot of rogue attempts at this," Norström told the Financial Times, defending the company's expansion into AI-generated music. "Controlled" products offer a path forward that protects artist rights while meeting consumer demand, he said.
The Swedish audio streaming giant announced a major licensing deal with Universal Music Group NV that will let Spotify Premium subscribers create AI-powered covers and remixes of songs from artists and songwriters who opt in. The tool, available as a paid add-on, opens additional revenue streams for Spotify and creates a new income source for artists on top of existing platform earnings, according to the companies. Spotify's head of music, Charlie Hellman, said the system was "built legal, trusted and aligned" so that "value flows back to the people who created it."
The AI push comes as Spotify faces Wall Street skepticism about its ability to stay ahead of competitors while controlling costs. Shares had fallen 25% through Wednesday's close before the investor day presentation, which sent the stock up as much as 18%. Spotify trades at 34.82 times forward earnings, with a market capitalization of $106.89 billion.
Spotify outlined growth targets through 2030 including a compound annual growth rate in the mid teens, gross margin of 35 percent to 40 percent, and operating margin above 20 percent. The company reiterated its long-term goals of 1 billion subscribers and $100 billion in revenue.
The Universal Music Group deal addresses one of Wall Street's biggest concerns about artificial intelligence in music — how to harness consumer interest without violating artist rights. Last October, Spotify reached a broad agreement with major record labels to use AI "responsibly," but had not specified what tools would emerge until now.
Beyond AI, Spotify announced a partnership with Live Nation Entertainment Inc. to offer subscribers early access to concert tickets — two tickets held before general sale — addressing long-standing fan frustration with bots and scalpers. The "Reserved" perk is designed to encourage subscriber retention as Spotify raises monthly fees.
Spotify's podcast business has been profitable for two years, executives said, and more than 500 million people have streamed a video podcast on the platform, up nearly 50 percent from a year ago. The company has captured about 20 percent of the US audiobook market. Users who engage with all three verticals — music, podcasts, and audiobooks — interact with Spotify almost daily, according to the company.
The AI licensing deal with Universal Music Group positions Spotify to capture incremental subscription revenue from generative features while giving artists a financial stake in AI-derived content. If the tool gains traction, it could pressure competing platforms like Apple Music and Amazon Music to pursue similar licensing arrangements. For investors, the key question is whether AI add-on revenue can meaningfully contribute to Spotify's 35 percent to 40 percent gross margin target, or whether the costs of licensing and infrastructure will compress margins in the near term.
This article is for informational purposes only and does not constitute investment advice.