Spotify Offers Managers, Artists Advances to License Music Directly to Its Streaming Service: Exclusive

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Spotify

Spotify has offered advances to a number of managers and indie acts in exchange for licensing their music directly to the streaming service, sources tell Billboard.

Under the terms of some of the deals, management firms can receive several hundred thousand dollars as an advance fee for agreeing to license a certain number of tracks by their independent acts directly to Spotify. Then, in at least some cases, the managers and acts stand to earn 50 percent of the revenue per stream on those songs on Spotify. That’s slightly less than the 54 percent of revenue the major record labels in the U.S. get per stream, on average, according to Billboard’s calculations, but major-label artists and their managers typically receive only 20 percent to 50 percent of the label’s share, depending on an act’s individual royalty rates, and don’t usually get to own their master recordings.

Does that mean Spotify is now operating as a record label in its own right? Not quite.

Spotify isn’t buying the copyrights that form the core of labels’ businesses, and the advances Spotify is offering are significantly smaller than the $1 million-plus sums that labels and independent distributors have been dangling lately to sign promising new acts. But Spotify’s terms are still attractive, some say, because they only apply to Spotify: the deals permit artists and managers to license the same works to other platforms under separate agreements, while retaining full revenue from any such outside deals. Independent distributors, by contrast, often require that their signees share with them a percentage of the total gross revenue generated across all services by a single or album.

Meanwhile, in its licensing deals with individual indie acts, Spotify has cautioned the artists not to say they are “signed” to the service, sources tell Billboard. These individual deals also allow Spotify to pay a slightly lower share of revenue to the artist than they would to a major record label, while the artist receives much more per stream than he or she would if signed to a major. The deals also don’t require the acts to give Spotify exclusive content or ownership of their masters, sources say.

Such direct deals could help Spotify reduce its costs, which have significantly outstripped revenues to date: Spotify lost $470 million last year on $4.7 billion in revenue. While Spotify has long executed a range of deals with indie labels of all sizes, the current offerings to managers could incentivize them to keep their new acts independent of any label.

But the extent of the deals Spotify can do with artists for now is limited: Spotify’s current licensing agreements with the major record labels explicitly prevent the streaming company from competing in a substantial or meaningful way with labels’ main businesses. Spotify isn’t supposed to buy catalog or musical recordings, for example, under the terms of its major-label deals.

There’s some question as to what qualifies as meaningful competition. One major-label source said that Spotify signing a few no-name acts to label-type deals would likely not be considered a breach of contract, but signing an established superstar artist could be a violation, depending on the deal terms, given the degree of competitive threat.

Direct deals aren’t new for digital distributors. SiriusXM has also inked licensing agreements directly with indie labels, though some allege those have been with the aim of establishing a market rate to present as evidence to the Copyright Royalty Board, which governs the compulsory rates satellite radio pays for music, sources tell Billboard. Apple Music signed a number of high-profile, short-term exclusive deals with artists from Drake to Chance the Rapper to Frank Ocean in the year after it launched, but has pulled back on such exclusives as labels have increasingly opted to maximize exposure for their new releases across all services in their first weeks on the market.

When copyright holders sign direct deals that allow digital services to play certain tunes at a discount, the services can save more money by giving those tracks more spins or better playlist placement. But one act that signed an agreement with Spotify last year has received less playlist promotion than it had hoped, a source close to the act tells Billboard.

In a statement last year, following controversy over the placement of tracks by little-known, pseudonymous producers on its mood-based playlists, a Spotify spokesperson said that “all of our playlists are performance based. The user experience comes first. Obviously, not all content costs are the same -- it's a marketplace -- but we do not favor any tracks on our playlists due to costs."