That’s why over the past few years, Spotify has been pushing five different paths to putting pressure on the labels to cut it a better royalties deal. They..
The problem with Spotify going public has always been that the record labels own the music. They force Spotify to pay 70 percent or more of its revenue to them for royalties, and could jack up that price if Spotify got too profitable.
That’s why over the past few years, Spotify has been pushing five different paths to putting pressure on the labels to cut it a better royalties deal. They all hinge around the idea of making the labels need Spotify as much as it’s historically needed them.
When Spotify launched in 2008, it had no power in the relationship since it had so few listeners. It needed to raise over $180 million in its first few years and pay the labels a huge upfront advance on royalty payments to convince them to let it launch in the US. Spotify also had to sell the labels equity so even if it succeeded, they’d be financially protected.
But now that Spotify has grown to 50 million paid subscribers and a huge base of free ad-supported listeners, it’s emerging from the pack of streaming competitors including YouTube / Google Music, Pandora, Apple Music, and Amazon. Spotify has begun to gain some leverage over the labels so that it can make money without them and they need it to have a hit record.
Here are the five ways Spotify is weakening the record companies’ iron grip on music:
Spotify’s Discover Weekly and Release Radar playlists aren’t just some of its most popular and differentiated features. They give Spotify newfound power to choose what artists and songs a large swath of its listeners hear. Instead of focusing on peer-to-peer sharing or direct channels between the artists and the fans, it’s prioritized music discovery methods that put it in control. Spotify wants to take the place of the thousands of radio stations that record labels typically kiss up to.
If Spotify can use its owned playlists to make or break different artists, it can use this influence to demand better deals from the labels. Record companies that offer it lower royalty rates, don’t do exclusives with its competitors like Apple Music, or get their artists to release special re-recorded Spotify Sessions of their hits could see their artists placed more prominently in Spotify’s playlists and their audiences grow. Labels that don’t play ball with Spotify might sublty notice they’re not getting the same playlist love.
