Spotify is reportedly getting close to finally signing new deals with the major labels; and if those same sources are correct, it will be at a lower per stream royalty rate. How did Spotify go from pariah to partner deserving of a sweetheart deal?
Spotify is rumored to be close to signing new deals with all three major label groups, after many months of tough negotiations.
What changed to make the deal, reportedly at better financial terms for Spotify, possible? Leverage, says TechCrunch writer Josh Constine. He offered 5 reasons and we've added 2 more that show just how important a thriving Spotify is to the music industry and how much power they wield in negotiations.
1) Dictating The Top 40
"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."
"Spotify contributes a big enough percentage of record labels’ total royalties that they have a lot more to lose from cutting it off... Spotify’s size has made record labels pulling out into either a bad bet or a bluff."
3) Diversifying Beyond Music
"Spotify has to pay out 70 percent of its revenue from major label music, but not from other content types like video and podcasts. That’s partly why Spotify is pouring investment into creating original content like 12 different video series... (and) a big original podcasts initiative."
4) Access Restrictions
"Spotify has built its ad-supported audience to be so big that it can now restrict their access to content as a bargaining chip. Some artists like Taylor Swift have been arguing for this option for years, but now Spotify has the scale to demand a financial incentive in return."
5) Becoming A Label
"If Spotify owns the rights to the music it streams, it’s who earns the royalty payouts. That’s why two sources tell TechCrunch that Spotify has discussed traditional record label-style deals with artists."
To Constine's list we add:
The labels may be giving the music streamer a hard time during negotiations, but deep down they know that Spotify is better than the alternatives. YouTube pays out far less per stream; and Apple Music, Amazon Prime Music and Google Play are all just a tiny part of big bad conglomerates who can afford to say NO to the labels at any time.
Remember when Apple became "too powerful" after iTunes grabbed 80% of the download market? As an independent all music company, Spotify is much more controllable.
7) An IPO Bonanza For The Labels
Never forget that the major label groups are significant stock holders in Spotify, as reportedly does indie label licensor Merlin. Some estimates put their combined stake in the music streamer at about 15%.
Whatever the real number, a successful IPO means tens of millions of dollars that go straight to each music group's bottom line.
H/T - TechCrunch