- Spotify is said to be signing direct licensing deals with artists and managers
- Although the deals mostly involve indie artists, record labels are viewing Spotify’s reported move as a threat to the traditional music industry model
- For artists, it has the benefits of a greater cut of sales and exposure on the app
Spotify has given the major music labels another reason to be angry.
The streaming giant has quietly landed direct licensing deals with a number of independent artists and managers, the New York Times reported, citing sources close to the situation.
As part of the deal, indie acts are given a path onto the platform, gaining exposure in the process, as well as a bigger cut of sales compared to the traditional labels.
Should the deals become more common, it threatens to unseat the hold that major labels like Universal, Sony and Warner have had on the music industry for many years.
Musicians and talent managers are given advance payments from Spotify that are between tens of thousands and hundreds of thousands of dollars in exchange for licensing recordings with the streaming platform, the Times said.
None of the artists involved in the deals are signed to a label.
By signing direct licensing deals, Spotify could one day cut out record labels entirely, while downsizing its royalties and distributions costs – a figure that currently eats up about 80 percent of its revenues.
Spotify, which now counts 83 million paid subscribers, has not confirmed the existence of such deals and hasn’t confirmed which artists it’s working with.
However, Spotify CEO Daniel Ek hinted at the move in a recent earnings call with analysts.
Should Spotify’s direct licensing deals become more common, it could unseat the hold that major labels like Universal, Sony and Warner have had on the music industry for many years
‘Licensing content does not make us a label, nor do we have any interest in becoming a label,’ Ek explained.
‘We don’t own any rights to any music, and we’re not acting like a record label.’
Additionally, Spotify described how it was eyeing big changes to the old model of the music business before it held its public stock listing earlier this year.
The deals are reportedly not exclusive, meaning that the artists can also license their music with competing services like Apple Music and Amazon Prime Music.
Artists are likely motivated to sign such deals as they offer musicians a bigger cut compared to labels.
However, it’s unlikely that record companies will be anywhere near dismantled by the move, as they oversee too much popular music and offer resources artists need, Bloomberg noted.
Following rumors of direct licensing deals, labels have taken up a defensive stance. Universal Music, for example, has launched exclusive playlists with Spotify rivals like Apple Music
WHAT ARE THE TOP MUSIC STREAMING SERVICES?
Online streaming services such Spotify and Apple Music have become the music industry’s single biggest revenue source, overtaking physical sales and digital downloads for the first time.
The rapid growth in streaming music services in recent years has led to a recovery in the fortunes of the global recorded music industry, which enjoyed its third year of positive revenue growth, according to a report by industry trade group IFPI.
Online streaming services such as Spotify and Apple Music have become the music industry’s single biggest revenue source
Last year, subscription-based streaming revenue accounted for 38 percent of all recorded music, up from 29 percent the year before, IFPI said.
Industry leaders say that the rise of music streaming is enabling the market to reach new regions of the world, while helping to wean a generation of music fans away from free or pirated music.
Latin America and China saw the biggest market growth, with a rise in overall music revenue of 17.7 percent and 35.3 percent respectively.
Some labels are fighting back, too, by threatening to withhold licenses Spotify needs to enter in the highly sought after market of India.
Others like Universal are working with rival services like Apple Music to launch exclusive playlists.
As a result, experts say Spotify has to tread lightly, lest it loses out on its relationships with the big labels.
‘They are treading carefully,’ Macquarie analyst Amy Yong told the Times.
‘They do not want the Big Three to shut them out from their library of content for the sake of signing deals with up-and-coming artists at a higher margin.
‘That’s not an economic trade-off that you want to do,’ she added.