Spotify is up to something and music majors are getting nervous

Streaming giant Spotify is entering the talent marketplace, even if it has not revealed which artists it has made deals with and declined to comment on the topic. But a long, in-depth report by "The New York Times" explains what's going on.

According to the article, six people in the music industry who have been briefed on the recent deals (but were not authorized to discuss them publicly) said that Spotify has paid advances to management firms and other companies that represent artists who are not signed to a record label - mainly up-and-coming acts and older artists who have gained control over their vintage hits. Spotify is offering artists a bigger financial cut and ownership of their recordings. Moreover, the deals 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.

But 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. Yong explained:

They are treading carefully. They do not want the Big Three to shut then 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. Moreover, the three conglomerates have lately favored Spotify’s rivals with promotional goodies. Universal, for example, created an exclusive playlist with Apple Music.