20 May 2015
Over the last year, streaming has taken some hits, and everyone seems to be trying to create the ‘new’ digital industry, trying to build the best new service for the future of the music industry. So far we’ve seen Tidal emerge, a streaming company owned by artists, Apple are apparently approaching release for their new streaming service and Spotify are teaming up with a coffee shop.
The Verge has obtained a contract between Spotify and Sony Music. The contract is 42 pages long, and originally signed in 2011, securing a two year deal with a possible third year. This deal was signed just before the streaming service launched in the U.S.
So, what does the deal with Sony reveal?
Spotify has to pay Sony Music yearly advances, it has subscriber goals set out by Sony and also how the streaming rate is calculated.
The two year licensing deal meant that Spotify paid out $42.5 million in yearly advances to Sony. According to inside sources, these cash advances don’t reach the musicians and go straight to the record label themselves.
Sony has a clause in the contract, the Most Favoured Nation clause, which essentially allows them to amend any aspect of the contract if another label has a better deal. Sony can also all on an independent auditor once a year to check whether Spotify has a more agreeable deal with another label.
Other clauses allow Spotify to keep up to 15% of advertising revenue that are handled by third parties, without counting this as revenue. Advertising rates is also a spot where Sony have had some say. Sony have some seriously discounted ad-space on the streaming service, which they could sell for millions, and it’s all legit, Spotify have no say on what they do with this space. Sony get the ad space for around $2.5 – $3.5 million dollars a year, totalling $9 million over the entire contract.
Sony can pull a revenue figure that is equal to 60 percent of Spotify’s monthly gross revenue, multiplied by Sony Music’s streams.
The contract has some other, interesting money making for Sony. There is a more complex formula. The contract has a usage-based-minimum and also a per subscriber minimum which covers both of Spotify’s subscription tiers. So if the royalties are more than what Sony earns from revenue share, they get that amount instead.
For months, even years, people have been unhappy with how much money artists are paid from the service, so from reading the contract, what do they actually get? Well, that’s still confusing.
No-one really knows. As The Verge‘s source mentioned, they are unsure of how much money makes it to the artists. What we do know, is Sony have struck a ridiculous deal with Spotify, and a contract that highlights where the real problem might lie.
After reading through these posts online, I can’t help but feel Spotify gets attention for not ‘paying’ artists, when really, the labels are the ones stifling the artists.
“Your beef can’t be with Spotify anymore.” – David Pakman, Former CEO of eMusic.
I don’t think Spotify are completely out of the red, but I think labels need to make sure that the money is returning to the artist, if it doesn’t, then what are they moaning about?