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Spotify's Risky Play: Direct Artist Licensing

Spotify new rectangleMusic streaming service Spotify is seeking to bypass the major labels by dealing directly with artists and their reps. Spotify has quietly struck licensing deals with a number of independent artists.

While the deals themselves have been modest so far, several people with knowledge of the agreements told the New York Times that major labels see the licensing deals as a very real threat with the potential to reimagine how the music industry functions.

Six different sources with knowledge of recent deals struck by Spotify told the New York Times that the streamer has paid advances of “tens or hundreds of thousands of dollars” to management firms and other companies that represent artists who are not signed to a record label.

Spotify New $The deals offer artists and their teams a bigger share of the proceeds from music streamed via Spotify, and, according to the New York Times report, the deals are non-exclusive, meaning the artist can license the content to Spotify’s rivals, such as Amazon or Apple.

For artists signed to major labels, Spotify typically pays a label around 52 percent of the revenue from streaming, with 15% to 50% of the label’s cut going to the song’s rights-holders. By direct licensing with Spotify, an artist would be able to hold on to their entire share, ensuring a substantially higher payout.

Spotify, for obvious reasons, has not publicized these direct licensing deals and Spotify CEO Daniel Ek has been quick to explain the streamer is not making a bid to become a label of its own.

Daniel-Ek“Licensing content does not make us a label, nor do we have any interest in becoming a label,” Mr. Ek said on an earnings call in July, first reported by Billboard. “We don’t own any rights to any music, and we’re not acting like a record label.”

However, that may not be enough to assuage their label partners, who are at risk of being cut out of the most profitable sector for recorded music by Spotify’s direct licensing deals.

Spotify has to walk a tightrope between ensuring that the majors are willing to continue licensing content to Spotify, while they build their own access to content with direct licensing.

That balancing act is made all the more perilous for Spotify by the highly competitive nature of the streaming music industry as Spotify contends with rivals such as Apple, Amazon, and Pandora. As well, Spotify will need to renegotiate licensing deals for access to catalog held by the ‘Big Three’ label groups as early as next year.

The underlying tension has been hinted at with a string of anonymous comments in news reports, and in more obvious ways such as Universal Music Group’s recent creation of an exclusive playlist for Spotify’s rival Apple Music.

“It’s almost a warning shot by the labels to remind Spotify that, as these stories play out, it’s not just Spotify that controls the narrative,” Bill Werde, formerly an editor at Billboard and now director of Syracuse University’s Bandier Program on the music industry, told the Times.

However, while Spotify’s overtures to artists may be receiving a cool reception from major labels, it’s proven to be a hit with independent artists.

“From our perspective, options are good,” Zack Gershen, a consultant with  MTtheory who works with artist managers told the New York Times. “Options create competition. They create innovation. They help everybody discover what the future of this business is.”

- CelebrityAccess

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