ICY MAGAZINE

Spotify is out of long-term contract with the big 3

The possible dispute has reportedly flared up debate about the need for a consistently higher admission price to particular music on Spotify than the free stream most users have become accustomed to, especially for newly-released music.

According to Music Business Worldwide, the idea to have new albums released to its premium subscription tier – at $US9.99 ($13.10) a month – for a couple of weeks before dropping on its free tier is being discussed, which would bring Spotify more in line with iTunes or Amazon. But it is far from becoming a done deal as the music labels recognise the shortfalls of imposing such a measure on Spotify.

Spotify is out of long-term contract with the three biggest music labels Universal, Warner and Sony and these heavy-hitters are not renewing unless they get a bigger slice of the pie from Spotify. The big 3 are the gatekeepers to stars such as Beyonce, Jay Z, Kylie Minogue, Sean Combs, Adele, Kanye West, Taylor Swift, Lady Gaga, Ed Sheeran, and Lorde to name a few. They also hold rights over music of late performers Prince, Michael Jackson, Whitney Houston, Jimmi Hendrix and Frank Sinatra and the disbanded Led Zeppelin, among others.

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Here’s where it gets tricky, Spotify has reportedly been losing money and wants to pay less to labels, and subsequently artists, if it is to survive against the better resourced, big earning tech giants Apple and Google.

How can a company, which has paid out $US 3 billion over the years in royalties to artists, labels and royalty holders, be in the red? According to figures MBW obtained from a financial filing in Luxembourg, even though Spotify turned over $US2 billion in revenue last year, about 84% was paid out in royalties and other costs. The share left over wasn’t used to grow the company as effectively as the labels would have hoped for, with MBW revealing that Spotify’s employment bill in 2015 ($US 271 million) was significantly larger than its net loss ($US 194 million).

That is not to say that Spotify isn’t progressing as a company, with last year being considered one of its most successful yet. And it holds plenty of clout with labels due to its 100 million active users and its ability to convert potential music pirates into 30 million subscribers. It is also viewed as necessary competition to Apple and Google.

So Universal, Warner and Sony aren’t about to cut Spotify off. In fact being out of contract, if true, isn’t even a big deal since licensing can roll on, on a month-by-month basis. But it’s not a position Spotify wants to be in, especially if founder and chief executive Daniel Ek is considering making the leap from private Swedish start-up to a publicly listed company on the US stock exchange.

Categories:   Business

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