Spotify is out of contract with all three major labels – and wants to pay them less

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Spotify is out of contract with all three major music companies, MBW has learned, with a dispute over revenue splits bringing disharmony to negotiations.

The Swedish streaming company has been out of a long-term deal with Universal Music Group for more than a year, say our sources.

Its contract with Warner Music Group expired in early 2016, while its licensing agreement with Sony Music Entertainment ran out of juice a few months ago.

In practical terms, this isn’t a huge problem.

Spotify continues to be licensed by all three majors on a rolling month-by-month basis, and the possibility of UMG, Sony or Warner catalogues being pulled is widely regarded as out of the question.

The majors, have, however, gnashed their teeth a little over Spotify’s recent promotional deals – not least its new family plan, which matches Apple Music’s equivalent by offering up to six people premium access for just $14.99 per month.

Some parties within Universal, Sony and Warner are believed to be uneasy about Spotify’s decision to announce such promotions without any long-term licensing agreements in place. (The situation was described by one senior major source to MBW today as a “very grey area”.)

Spotify’s investors, meanwhile, must be concerned about Daniel Ek’s chances of pulling off an IPO without long-term major label deals: the majors own around 75% of global recordings market share.


The bigger story here, however, is the reason behind the licensing impasse.

MBW understands that previous Spotify licensing deals with the majors, struck by the likes of Universal’s Rob Wells, were softer – revenue share-wise – than contracts agreed with rivals such as Rdio.

This was initially justified as a ‘marketing discount’ for Spotify, with Daniel Ek committing to spending a portion of the money saved on swiftly growing his company’s footprint.

So far, however, that agreement hasn’t budged.

MBW understands that the Swedish streamer continues to pay a revenue share of around 55% to labels (not including publishing money).

The now-bust Rdio, for comparison’s sake, paid around 60%.


The major labels, unimpressed with some of Spotify’s recent spending decisions, believe that now’s the time to up this figure. So where do they want to take it?

Well, it’s common knowledge that Apple Music is paying 58% of revenue to labels – after users’ free trial periods have finished.

The majors want Spotify to move its revenue share up towards that point.

Loss-making Spotify, though, is attempting to push this revenue share down, say MBW’s sources.

Yup: that means paying labels and artists a smaller slice of the proceeds.


How far down Spotify want to push this rev share is a matter of debate: one label source told us today that Spotify has asked to go below 50%, but a senior Spotify source flatly told us this is untrue.

(Apple is also believed to pay publishers 13.5%-15% of revenue depending on the territory – slightly higher than Spotify.)

Regardless, the idea of Spotify paying labels – and artists – a lower portion of its income is bound to be highly contentious.

In recent years, Daniel Ek’s business has worked hard to turn around its reputation amongst acts previously seen as anti-Spotify, such as Pink Floyd, Metallica and Placebo.

Spotify’s negotiation team – including former UMG exec Francis Keeling and Chief Content Officer Stefan Blom – have some strong arguments in their corner.

For one thing, they have pointed out to labels that Apple Music’s 58% rev share figure only applies after its three-month free trial. A blended rev share rate, therefore, wouldn’t be as impressive.

In addition – and this is really the crux of the debate – Spotify needs the majors to cut it some slack if it’s going to be able to compete on any level with Apple’s spending power, let alone that of Google and Amazon.

Across 2015, Spotify posted a $194m loss from revenues of just over $2bn.

84% of this revenue figure – or $1.83bn – went back out the door in ‘royalty distribution and other costs’.

The precise amount that went to labels and publishers combined is believed to be just under 70% of revenue.


The negotiation between the majors and Spotify, according to numerous MBW sources, remains optimistic on both sides.

The likely outcome, said one, would be a licensing deal stuck at around the same level it has stood for the past three years.

There are, however, other flashpoints.

Spotify has recently explored the possibility of locking down artist exclusives – and come close with at least one major-signed act.

The streaming company is philosophically opposed to this kind of deal, say insiders, but is equally sick of watching Apple and TIDAL lock down artists such as Drake, Frank Ocean and Kanye West for varying periods.

The major label point of view: if we give Spotify a break by reducing our rev share, and that extra money then goes direct to a blockbuster artist who is signed to us as an exclusive payment, haven’t we just stiffed ourselves?

An interesting balance of power.


Another big talking point: windowing. (Aka: the locked exclusivity of some records on Spotify Premium – and off Spotify’s free tier – for certain periods of time.)

According to MBW’s rock solid sources, this is now on the table in Spotify’s negotiations with major labels.

One powerful rights-holder, who works outside the major label world, recently told us: “If Spotify just windowed every new album for two weeks on premium, one rule for everybody, 90% of their problems would go away.”

However, a senior major label figure told us today that the majors weren’t necessarily all dead-set on Spotify making hard-and-fast rules on windowing.

“Spotify’s free tier is one of its only real effective advantages over tech giants with masses of resources,” they told us.

“We all understand that – and the last place most of us want streaming to end up is a straight fight between Apple and Google.”Music Business Worldwide

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  • drk@dynamicrecording.com

    Spotify, Pandora, etc should pay up or be forced to shut down !

    • Paul Archer

      Pay up out of what ???? Spotify are a loss leading company at the moment.They gave out at least 70% $1.83 billion of their revenues of $ 2 billion back to the Major’s + Indie labels (many of which have distribution deals with the Major’s as well) + publishers (most of which are sub-divisions of the Major’s).It sound’s like the Major label’s are leaching off Spotify more than anything.Spotify lost $194m.The Major label’s are the problem, due to the inefficient & outdated way they run their businesses.The music industry rewards it’s top executives (including Daniel Ek for that matter) very well, there is were the problem lies.Why would they want to change that quickly.
      As for rewarding artist’s – there is far too many of them competing for a pie that the Major label’s promise is bigger than it actually is (nothing’s changed there), apart from their prefered top 10% off artist’s they sign – even alot of them aren’t happy with their reward’s (main reason behind formation of TIDAL).

      • drk@dynamicrecording.com

        Major labels get more from Spotify, Pandora, etc, but not the small independent labels and artists. Our label has been doing business for 40 Years now, and we have had our catalog on line for 20 years. And we have done very well for a small indie label. But, Streaming is killing us.

        Open letter to the Music Industry:
        As you know, there is a lot of discussion regarding the fair payment
        of writers and performers of music
        that is being streamed – whether for a very small price per stream or for free.
        At Dynamic, where we have many, many recordings available on CD Baby,
        we feel that
        our income has been adversely affected by the policies in place right
        now. A look at our earnings (and therefore the earnings of CD Baby too!)
        demonstrates that through the first quarter of 2016, our revenues are
        only at 67% of the same quarter last year.
        2015 was down slightly from 2015, and I’m guessing that if we had not
        added additional titles during 2015, the difference
        may have been more significant. If this trend continues through
        2016, being down 33% in CD Baby income is not good.
        And we’re only one company on CD Baby – if other musicians, record
        companies, independent performers, etc. are seeing the
        same trend, it’s a serious loss in income to people who are not being
        compensated properly for streamed and free music.
        We believe CD Baby should unite with the others who have taken a
        stand to gain reasonable payment for artistic endeavors.
        Spotify payment to Dynamic Recording:
        63 streams – $.06 cents. This is a major rip off.
        Radio stations pay us 8.5 cents per play.
        cdBaby, iTunes, amazon all pay us well.
        Smart music buyers love the free music and do not purchase or download.
        Many top Artists have pulled there music from streaming, because their sales
        and downloads have dried up.

        Sincerely,

        Dave Kaspersin
        President
        Dynamic Recording Studio Independent Label

        • Paul Archer

          I’m morally agree with you.It’s a sad fact that the Major labels control the Music Industry (although still may / do not have full control over the whole music business).Due to the fact that these oligarchic Major Labels have control of the Music Industry they also control Spotify (even though Spotify has control of it’s internal business practices, although still partially answerable to it’s Major Label minority shareholders).As you know Indies generally have distribution deals with Major Label subsidiaries.The Major’s are controlling the last point of physical product distribution in this case, as well as having more of an online presence (now anyway).
          Until a time when the basic scenario outlined above changes there is no chance Spotify or any brand leading streaming format which the Major Labels ‘choose’s’ to support will mean that Indie labels will gain enough market presence to force or make it viable for a streaming service to pay out more.As you now iTunes / Apple are in a battle over who control’s digital distribution of music.Apple can pay more for digital content because it sells digital playing physical product on the back of it, it has a 64% share of the digital download market.It’s growth & profit’s are stalling though.Indie labels have two options either except the circumstances as they are or try & circumvent Music Industry standard practices.Even if Indie labels invent new ways of popularising or monetising their output, the Major labels will still shadow those innovations.

          To say Streaming – Spotify, Pandora is killing Indies is being far to simplistic.The Major Labels are killing Indies & will use every means to increase their market share collectively or independently (possibly using loss leading practices themselves at times).They can use their market power to strike a better deal with Streaming services.Even forcing those streaming services to operate at a loss to keep their support.

          • drk@dynamicrecording.com

            Thank you for your input Paul. We are going to wait and see where this goes. but if Spotify, etc do not start paying more, we will pull all of our music from all Streaming sites. Most customers will not purchase what they can stream for free.

  • “MBW understands that the Swedish streamer continues to pay a revenue share of around 55% to labels (not including publishing money).”

    55%? I thought it’s 60% according to leaked Spotify-Sony deal.

    • Ok, I know it. It’s probably the previous ‘long-term’ contract signed in 2011. So basically Spotify in some point of time down label-share from 60% into 55%?

    • Cidre

      Do you have a copy of the complete 2011 contract you could send me, please?

  • Guilherme Henrique Ferreira Go

    OMG! When will these old folks from music industry really understand online business?? Think: “If Spotify just windowed every new album for two weeks on premium, one rule for everybody, 90% of their problems would go away.” -> This is exactly where the biggest nightmares will merge (again) to end of what was supposed to be the salvation of music the industry. There is no away to stop people from listening what they want WHEN they want it. This would only lead to people uploading/listening on Youtube (the enemy!) and thousands of new torrent files being shared again… hundreds of angry kids doing a open-source apps like “popcorn-time” for music… imagine.. think… pickup your real fights and stop non-sense!

  • iLeonD

    All of this is great but all I want for Christmas is to have the songwriter fairly compensated.

    That’s not the streaming companies issue or any other medium that plays music as they already pay the bills via things like ASCAP and BMI who in turn are supposed to pay the artist.

    And they do… They pay them whatever deal was agreed upon when the artist was signed. Clearly, it’s not enough for the artist to sustain a living.

    That is a very heavy issue between the record company and artist. I do hope it gets worked out soon because at some point in the not so distance future the artist will disappear.

    Then all we will have is “classic” music along with the ancillary music in my brain.

    I don’t like that future.

  • The leaked Sony contract revealed many cases of abuse by the top record labels regarding profit distribution. Major Labels like Sony, Universal, and Warner own an 18% stake in Spotify. (This article doesn’t mention if that’s changed.) The Labels profit from their stake and also ad revenue which doesn’t trickle down to artists. Unless that is addressed artists will never get their fair share.

    • Paul Archer

      What is a fair share in an over supplied market, when the consumer isn’t necessarily that bothered in quality IMO.Quality of musicianship doesn’t seem to stand for much these days if celebrity status cannot be achieved alongside it.If you haven’t got the quality of musicianship you don’t deserve a fair share anyway, even though celebrity status quite often short-cuts that fairness 😉 .

  • kritikosman

    The whole of the streaming apparatus sucks!–Big Time Too!

  • bob

    Music began as a live-only activity and existed as such for thousands of years. For about a century the record & broadcast industry figured out how to make money for artists, writers, and themselves through a series of electro-mechanical inventions. Now the internet has helped make stealing recorded music impossible to stop. So, we’ve come full circle and if you want to make a living as a musician today, then it’s back to live performing for pay, and teaching if you can.

  • Knowles222

    What spotify ultimately need to do is go Netflix route and start signing artists up and become a record label itself.