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Spotify’s Direct Licensing Deals Fuel Industry Tensions

 

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While around 80 percent of the music business is controlled by three massive conglomerates Universal, Sony, and Warner, a new Spotify endeavor may disrupt business-as-usual in the music industry. Over the last year, Spotify has struck direct licensing deals with a small but increasing number of independent artists, providing these artists access to the major streaming platform and advantages in their Spotify playlist placement, all without label support.

While these sorts of deals are currently modest, the major record labels are seeing it as a possible threat to their business model. Spotify has carefully declined to publicly state its talent roster, but insiders have noted that the emerging model involves Spotify’s payment of advances to management firms representing unsigned artists. What Spotify offers in return is a larger financial cut (currently Spotify pays a record label around 52% of the revenue of each stream, and the label pays the artist somewhere between 15-50% of its return). Additionally, Spotify’s deals have not been exclusive, leaving artists free to license their songs elsewhere.

Spotify’s current contracts with larger labels directly prohibit it from becoming a label. As clarified by Daniel Ek, Spotify’s chief executive, “licensing content does not make us a label, nor do we have any interest in becoming a label.” The growing service still makes major labels nervous, and at a time where tensions between the major labels and Spotify have already been stressed with music labels reportedly viewing Spotify as an arrogant and unreliable partner.

Music executives have noted that this tension may produce problems for Spotify in the near future, both as its contracts with labels expire over the next year and in its acquisition of the licenses needed to expand to India. The full implications of these deals have yet to be seen.

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