Slowly but surely, the major labels’ dominance of Spotify is declining

Bad Bunny was Spotify's most streamed artist globally in 2020 and 2021

By 2030, some analysts suggest, Spotify will be worth more than $300 billion.

But at this point, what percentage of plays on Daniel Ek‘s platform will be of music signed to and/or owned by major record companies?

According to recent numbers issued by Spotify itself, perhaps less than you’d think.

Spotify’s most recent annual financial report revealed the following piece of information: across the total volume of global music streams on Spotify in 2020, recorded music controlled by the three major record companies plus Merlin jointly claimed 78%.

That’s music streams; Spotify makes the definition clear as to exempt podcasts from this calculation.

(Merlin, for those who require a definition, represents a collection of the world’s most powerful independent labels and distributors, and has previously been referenced by Spotify itself as a “major”.)

Obviously, 78% is a hefty majority of plays on Spotify, but just look how it compares to the same number in prior years (as reported in Spotify’s previous annual FY reports):

As you can see, nearly 10% of annual global market share by volume on Spotify has passed from the major labels and Merlin to independent artists and labels outside of these structures within just the past three years.

The annual pace of this decline is getting faster: in 2018, the majors and Merlin lost 2% versus the prior year; in 2019, they lost 3%; and in 2020, they lost 4%.

If this rate continues at around -3%/-4% each year, by 2030, the majors and Merlin will have less than 50% of all annual plays on Spotify – a crucial tipping point, surely, when it comes to the leverage these companies wield during their semi-regular licensing renewal discussions with Spotify.

Merlin itself currently claims that its membership “represent[s] 15% of the global market share” on services like Spotify.

Strictly speaking, that claim appears to refer to the money generated on Spotify, rather than the volume of plays on the platform. (Which is not the same thing, as a play on Spotify’s free tier is worth far less than a play on its Premium tier, and Merlin labels/artists have traditionally had a higher representation of plays amongst Premium subscribers than free users.)

Regardless, this suggests that the true collective recorded music market share by volume on Spotify between the majors – Universal Music Group, Sony Music Group, and Warner Music Group – today could be closer to 63% (i.e. 78% minus 15%).

The relevant line from Spotify’s annual 20-F SEC report for 2020

So where is this market share going – and what’s causing such a reduction in major label power?

One obvious stat to consider here is the dilution of listening on Spotify being caused by the now-60,000 tracks a day being uploaded to the service.

Another key statistic, as cited by Downtown Music Holdings boss Justin Kalifowitz in his new op/ed for MBW: according to Spotify’s ex-Chief of Economics, Will Page, eight times more music by volume was uploaded by DIY artists to Spotify in 2020 than was released by the three major record companies.

In short, an avalanche of indie music is swamping major label music on Spotify, and that’s being increasingly reflected in the share of total plays (and total royalty payouts) on the platform.

Midia Research’s Mark Mulligan has today (March 1) dug deeper into the changing shape of global market shares on Spotify.

Midia’s research suggests that in 2020, the three major record companies shared 68.9% share of all plays on Spotify globally (by volume), with Merlin members on 9.1%.

Non-Merlin independent music companies, suggests Midia – which includes those labels distributed/serviced by Paris-headquartered company Believe – claimed 15.7% of all plays on Spotify last year.

And “artists direct” – aka DIY artists uploading themselves – claimed a Spotify volume market share of 6.3%.

Mulligan points out that this set of figures demonstrates a decline in majors-plus-Merlin market share in the past few years that is “nothing short of tectonic”.

Mark Mulligan Midia Research

“The direction of travel is clear: streaming is paving the way for a new breed of independent.”

Mark Mulligan, Midia Research

Mulligan also takes a stab at estimating the revenue growth each of these industry segments (major music companies; Merlin; non-Merlin indies; DIY/artists direct) saw on Spotify last year.

He suggests that the “non-Merlin independents” grew their revenue on Spotify by a whopping 49% in 2020, followed by “artists direct”, who grew their revenue by 28%.

The major record companies saw their combined revenues grow by 14%, suggests Mulligan, with the Merlin-affiliated indies experiencing a flat revenue performance year-on-year.

This all led to an inevitable shift in revenue market share towards non-major and non-Merlin independents plus DIY artists, writes Mulligan.

“Even with all the caveats considered,” says the Midia boss, “the direction of travel is clear: streaming is paving the way for a new breed of independent, one that is gaining share at the expense of both majors and traditional independents.”

It’s worth remembering that none of this takes into account podcast listening on Spotify, either – something which threatens to further erode the major record companies’ market share of consumer behavior on the platform.

According to Spotify, it had 2.2 million podcasts on its platform at the close of Q4 2020, up by 300,000 on the 1.9 million it hosted at the close of the prior quarter.

Total consumption hours of podcasts on Spotify nearly doubled in the year between Q4 2019 and Q4 2020, said the company.

Some 86.25 million Spotify users (25% of its total 345m global MAUs) interacted with podcast content in the final three months of last year.Music Business Worldwide