A New Spotify Initiative Makes the Big Record Labels Nervous
A New Spotify Initiative Makes the Big Record Labels
Nervous
By Ben Sisario, New York Times September 5, 2018
For decades, the path to stardom in the music industry
has usually gone through a major record company.
Almost every artist today who reaches the top of the
charts — whether Kanye or Adele, Beyoncé or Drake — has gotten there with help
from one of the three conglomerates that control around 80 percent of the
business: Universal, Sony and Warner.
Now Spotify is experimenting with another approach, one
that is making those labels nervous.
Over the last year, the 12-year-old company has quietly
struck direct licensing deals with a small number of independent artists. The
deals give those artists a way onto the streaming platform and a closer
relationship to the company — an advantage when pitching music for its
influential playlists — while bypassing the major labels altogether.
Although the deals are modest — with advance payments of
tens or hundreds of thousands of dollars, according to several people involved
— the big record companies see the Spotify initiative as a potential threat: a
small step that, down the line, could reshape the music business as it has
existed since the days of the Victrola.
Spotify, a Stockholm company that went public in April,
has offered few details about its entry into the talent marketplace. It has not
revealed which artists it has made deals with, and declined to comment for this
article.
According to six people in the music industry who have
been briefed on the recent deals, but were not authorized to discuss them
publicly, Spotify has paid advances to management firms and other companies
that represent artists who are not signed to a record label. For now, that
means up-and-coming acts and older artists who have gained control over their
vintage hits.
Spotify is offering artists two advantages: a bigger
financial cut and ownership of their recordings. The deals, furthermore, are
not exclusive, leaving the artists free to license their songs to other
streaming companies, like Apple Music and Amazon.
Spotify typically pays a record label around 52 percent
of the revenue generated by each stream, or play, of a given song. The label,
in turn, pays the artist a royalty of anywhere from 15 percent to, in some
cases, 50 percent of its cut. By agreeing to a direct licensing deal with
Spotify, artists and their representatives are able to keep the whole payout.
The closest the company has come to making its ambitions
public was during an earnings call in July, when Daniel Ek, the company’s chief
executive, confirmed reports in Billboard and elsewhere that Spotify was
pursuing direct deals with independent artists. He was careful to add that such
deals did not mean Spotify was turning into a record company — something that
Spotify’s contracts with the big labels forbid, according to people briefed on
the terms of those contracts.
“Licensing content does not make us a label, nor do we
have any interest in becoming a label,” Ek said on the call. “We don’t own any
rights to any music, and we’re not acting like a record label.”
The next Ed Sheeran or Ariana Grande may be attracted by
the very thing Ek cited in arguing that Spotify is not becoming a label. With
its 83 million subscribers — and nearly 100 million more who listen free — the
service can offer significant exposure to artists without asking them to give
up something that traditional record companies demand as part of any deal:
ownership of their recordings.
Taylor Swift is one artist who is intent on keeping her
work. She will become a free agent this year after the expiration of her deal
with Big Machine, an independent label in Nashville that is distributed by
Universal, and she is said to be seeking a deal that would give her ownership
of her recordings.
Spotify’s decision to forge closer relationships with
artists comes with a big risk, however. In the end, it may not be worth
antagonizing the labels that the company depends on, said Amy Yong, a media
analyst at Macquarie.
“They are treading carefully,” Yong said. “They do not
want the Big Three to shut them out from their library of content for the sake
of signing deals with up-and-coming artists at a higher margin. That’s not an
economic trade-off that you want to do.”
The major labels have signaled their disapproval of
Spotify’s under-the-radar initiative in various ways. Through anonymous
comments in news articles, music executives have indicated that they could
punish Spotify by withholding the licenses the company needs to expand to
India. The labels have also suggested they will be unwilling to compromise with
Spotify as its contracts with the labels expire over the next year.
Representatives for the three major labels declined to comment
for this article. In what may be another sign of the tensions between the
entrenched music industry and the streaming service, the three conglomerates
have lately favored Spotify’s rivals with promotional goodies. Universal, for
example, created an exclusive playlist with 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,” said Bill Werde, the director of Syracuse University’s Bandier
Program on the music industry and a former editor of Billboard magazine.
One company that has made a deal with Spotify is Human Re
Sources, a small distributor founded by J. Erving, an artist manager who has
worked with Troy Carter, Spotify’s departing head of creative services.
In an interview, Erving said Spotify had paid a modest
advance that helped him establish his company. Human Re Sources, he said, is
able to pitch songs directly to Spotify’s internal teams — a rare advantage in
the industry’s vast do-it-yourself landscape.
Spotify has not given favorable rates to artists
affiliated with Human Re Sources, Erving said, and it has not guaranteed them
placement on its playlists. But the company’s artists have had success
penetrating Spotify’s most influential playlists, like New Music Fridays and
Rap Caviar. Some of them, like Jussie Smollett — an actor in the hit television
show “Empire,” who makes slithery R&B — have also made it onto a Spotify
billboard in Times Square.
“Spotify has been very supportive of the stuff that we
have released to date,” Erving said. “But Apple and Pandora have been very
supportive as well.”
In preparation for its public stock listing, Spotify
hinted that it had big plans to change the “old model” of the music business,
which it said relied on “gatekeepers” like record companies and radio. In their
place, Spotify said, it wanted to usher in a new era that would help new
artists break through more easily.
That stance has put Spotify in an awkward position
between investors, who are rooting for disruptions that could lead to profits,
and music business executives, who would like the streaming service to stay in
its lane.
According to public filings, Spotify had about $4.9
billion in revenue last year but almost $1.5 billion in net losses. Its stock
price has risen steadily since April, and the company is valued at roughly $34
billion. Below the level of the giant conglomerates, the attitude toward
Spotify’s moves has been anything but hostile. Its entry into the talent
marketplace may give artists more leverage, said Zack Gershen, an executive at
Mtheory, a company that consults with artist managers.
“From our perspective, options are good,” Gershen said.
“Options create competition. They create innovation. They help everybody
discover what the future of this business is.”
Copyright 2018 New York Times News Service. All rights
reserved.
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