The major labels could block Spotify’s expansion into India due to direct licensing fallout

This situation is starting to get serious.

MBW has spoken to separate senior sources at all three major music companies in the US over the past 24 hours – and they’ve all told us the same thing.

The top dogs at Universal, Sony and Warner are very unhappy about Spotify starting to directly license artists and pay them advances. (These artists, MBW is told, may include a massive US hard rock band.)

The majors are so vexed by Spotify‘s move, they’re considering something of a nuclear option: blocking new territorial licenses so that Daniel Ek‘s service won’t be able to see through its plans to launch in India and beyond this summer.

MBW is told that Spotify plans to roll out its service in India – first in beta, and then publicly – in the coming months.

This, we understand, will be the first step in Spotify’s next stage of global expansion, something the company’s Wall Street watchers are understandably very keen on.

After India, in order, Spotify is looking to land in South Korea, then Russia, and then to ramp up its presence in the Middle East and Africa.

To fulfil this roadmap, however, Spotify’s going to need territorial licenses from the Big Three.

And, right now, those licenses are not forthcoming.

“We already have multiple, very strong partners in all of those markets,” a very senior, US-based source at one of the majors told us yesterday.

“It is up to Spotify to convince us why we should help them compete. And right now, for obvious reasons, we don’t feel very convinced.”

They added: “We are seriously considering [not licensing] India.”

A key exec within the global HQ of another major told us that blocking Spotify’s India launch would be  “just the tip of the iceberg in terms of our response options”.

(That’s ‘response options’ following Spotify’s direct licensing shenanigans, if it wasn’t clear.)

And a high-up corporate figure at the third major – when told that their two key rivals were mulling a licensing block in India – responded: “Ditto. We all know that, without these markets, Spotify’s global market share simply won’t grow.”

Spotify fully-licensed service is currently available in 65 markets.

Its most recent expansion, in March, saw it land in South Africa, Israel, Romania and Vietnam.

In the same month, Saavn, one of the leading music streaming companies in India, announced that it was being merged with rival service JioMusic in a deal that valued the newly-combined platform at over $1bn.

That move was masterminded by Reliance Industries Limited (RIL) – one of India’s largest private corporations which boasts an annual turnover of more than $50bn.

Meanwhile, in Russia, all three major labels now have licensing deals with social media platform Vkontakte – following years of legal disputes. Vkontakte boasts over 100 million active users.

Apple Music currently operates in more than 110 territories – including India and Russia.

It also operates its Beats 1 radio service in South Korea.

India, with a population of 1.3bn people, was the 19th biggest recorded music market last year, according to the IFPI – generating $130.7m.

Russia, with a population of 144m people, was the 24th biggest market in 2017, generating $83.8m.

According to Billboard, Spotify is now striking deals with independent acts which see 50% of per-stream revenue going to the performer and 50% staying at the streaming company.

Typically, says Billboard, record labels are paid a 54% per-stream share of Spotify revenue. (Some sources tell MBW this is as low as 52%; other say as high as 55%.)

If an artist was on a standard 80/20 deal with a label, they would ultimately get 20% of this 54% revenue share – ie. a net per-stream share of about 11%.

Even if an act’s label royalty was as generous as 50/50, they would still only get a net revenue share of 27% (ie. half of 54%).Music Business Worldwide

Related Posts