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Headquarters of Universal Music Publishing Group in Santa Monica, California
Spotify needs big labels and publishers, and major labels and publishers need Spotify. But that does not mean they have to love each other.
Several months ago, Spotify unveiled an interesting plan. The company will provide independent / unsigned artists and management groups with direct licensing agreements. The most popular independent artists and bands would receive substantial discounts for their works on the platform, as well as the ownership of their masters. They would also receive cash advances of 5-6 digits.
The big labels were not happy with the move. And the indies either.
But it was not an erratic reflection. At present, we have learned that Spotify has completed several direct transactions with substantial advances. But we do not know what is the extent of all this and how much it will expand.
Considering this change as a threat to their business model, the executives of Universal, Sony and Warner have shaken the situation, but we also do not know how this will happen in future renegotiations.
Visibly disconcerted, CEO Daniel Ek has spent months convincing the music industry that Spotify is not competing with labels. In the second quarter of the year, the company's earnings were announced in July, Ek said.
"The content of the licenses does not make us a label, and we have no interest in being a label … We want to increase the number of labels and creators on the platform, as well as the number of creators using our tools and services. In some cases, we license labels and in others, artists if they own the rights to their own music.
But a new conflict has erupted between Spotify and the music industry, especially with music publishers. This time on royalty payments of music videos.
The war of music videos.
Promoting the greatest artists to its 180 million users, Spotify offers many music videos at the top of its most popular playlists. The company would earn a substantial amount from the videos. And as far as curation is concerned, the videos offer critical differentiation in playlists like Rap Caviar.
There is just a problem. The company did not pay its fair share to publishers, at least according to the frustrated publishers.
Speaking with Lucas Shaw of Bloomberg, Marc Cimino, an executive at Universal Music Publishing Group, blew up the company.
"We want to allow our digital partners to experiment and ensure that our songwriters are paid correctly. The audio is different from the video."
Cimino oversees a large catalog of songs, collecting royalties for artists such as Nicki Minaj and Adele.
The dispute would have lasted several months between Spotify and major publishers, including BMG. And senior leaders can get enough.
Per Shaw, the company frequently deploys and tests new features without first informing music managers. Spotify also does this without accepting fair compensation.
The world's first streaming music streaming service, in terms of subscribers, will soon begin negotiations with publishers. If these contracts are favorable to Spotify, they can help the company finally make a profit after 10 years in the market.
Play the blame game.
Before the main talks, the problem is that both parties – the music industry leaders and Spotify – have blamed each other.
Leaders, for example, would call Spotify a bad partner – "arrogant, unreliable and disdainful of their work.
Both sides, it seems, have a point.
Spotify's direct licensing agreements with popular independent artists have cut an important source of revenue for major labels and publishers. With the chords, Spotify would serve as an intermediary for the celebrity. After all, the service attracts a huge global audience.
Major record companies and publishers, on the other hand, now have billions of dollars in revenue. Sony and Universal now earn more than $ 500,000 per hour in streaming royalties only, according to retroactive estimates. Of course, leaders do not want to lose a growing source of income. After all, thanks to streaming companies like Spotify and Apple Music, the music industry recorded a turnover of $ 43 billion last year.
And, both sides can not afford to excite each other.
As the company has now become public, Spotify can not cut major labels and publishers without harming its results.
The service has yet to find a missing ingredient, another smaller competitor – profitability. Thus, with its planned worldwide expansion, Spotify must appease the major labels and publishers to obtain music licenses.
Labels and publishers, meanwhile, can not afford to reject Spotify. Its global reach has become too gigantic.
Amy Yong, an analyst at Macquarie, has expressed this contradictory relationship between Spotify and the music industry.
"It's a strange relationship because the record companies want Spotify to succeed, but not too much. This gives them too much weight.
Unfortunately, the conflict between the two sides continues to afflict a key victim: the artists.
According to Citibank, while music industry sales continue to grow dramatically through streaming, artists receive only a small percentage of that amount – about $ 5 billion.
In upcoming negotiations, Spotify will look for a royalty payment agreement that will help it become profitable. Or at least lose less money. Of course, major labels and publishers will seek to retain a larger share of royalties for their works.
In the end, despite the fact that anyone succeeds in getting a favorable deal in negotiations, musicians and songwriters will continue to receive bread crumbs. But that's another article.
Featured image by Hans Splinter (CC by 2.0).
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