For some time, we’ve seen signs that top music performers feel on the spot with Spotify, worried that they are losing out financially as the industry shifts to a more streaming-centric business model. And last week’s disclosure of a previous, now-expired licensing deal between Spotify and Sony gives them even more ammunition.
As reported by The Verge, the contract included a “most favored nation” clause, allowing for Sony to amend the terms with Spotify if other labels negotiated better deals.
As International Artists Association President Paul Pacifico said in a statement, “Labels are only required to fulfill the duty to the artist laid out in the contract that they sign and that contract is subject to the negotiation between two parties with vastly mismatched bargaining power.”
In other words, the streaming deal guaranteed an upside for Sony — but not necessarily for artists, who may not even be aware that labels are profiting from renegotiated deal terms.
After the music industry’s rough ride post-Napster, you’d think this would be a time for artists and labels to get along. According to the International Federation of the Phonographic Industry, revenue from subscription services rose 39 percent in 2014 to $1.6 billion.
The problem is that growth seems to be coming at the expense of digital downloads.
The IFPI notes that streaming revenue has overtaken download revenue in at least 37 countries and now represents 23 percent of total digital music sales. That helps explain why Taylor Swift pulled her music off Spotify last fall: She wanted to insure that fans kept buying her songs on more lucrative outlets like iTunes.
It also explains the March launch of Jay Z’s streaming service Tidal, billed as a more which was billed as a more artist-owned platform.
A wild card in the battle between labels and artists may be the total number of people who choose to pay monthly for music streaming, which the IFPI currently estimates to be 41 million.
But with Spotify’s recent decision to offer video to its free users, the service seems to be hedging on video-driven ad revenue in case it can’t convert enough users to the paid version of its site to make a subscription revenue model viable.
As former Universal Music executive Larry Kenswil revealed in a recent interview, “The main purpose of Spotify’s free service is to convert users to paying subscribers. That’s how everyone makes money, including the music labels.”
And potentially artists as well.