Sony/Spotify contract leak: radical thoughts

Sony/Spotify contract leak: radical thoughts

by Gideon Gottfried


Streaming services have been in a tough spot over these past months and years. While a great number of people believe in the services’ ability to save the music industry for good, there are an equal number of sceptics who think Spotify, Deezer and the rest will ring in the death of the average artist. Granted, these are the two extreme positions. But the music community has been fobbed off with so little information in the past that a sound assessment of the benefit of streaming has been hard to make. Transparency, the number one mantra in the digital age, is only slowly being embraced by the traditionally stubborn music industry (bar a few independent companies that have been doing so for quite some time). Thanks to the leak of the contract between Spotify and Sony Music, a great amount of transparency has finally been introduced into the murky major label sphere as well.

41 pages of cryptic language

The spotifycontractfirst thing you’ll notice when looking at that contract is that it’s 41 pages long. Now if you are a lawyer, you’ll rejoice. After all, it’s your job to translate huge chunks of complex language only understood by an elite few. But why do simple desires have to be transformed into a seemingly foreign tongue, until even the grant of a licence takes up an entire page? There are companies that allow two parties to agree on a license online via a few clicks. Yeah, a major label contract covers far more territories and contains far more songs, so it needs far more specific stipulations. But come on, 41 pages? We thought everything was supposed to become simpler in the digital evolution.

Huge upfront payments

The contract confirms the worst kept secret in streaming, that Spotify has to pay huge upfront advances. Nine million in the first year, 16m in the second, 17.5m in the third. Sony Music does have one of the most important music catalogues in the world. But the label also receives a revenue share or per-stream rate respectively, depending on which is higher in any given month. What is more, the per-stream rate is raised if Spotify does not meet other stipulations of the contract such as subscriber goals. Call us naïve, but isn’t it a bit harsh to punish a business partner who you want to save the industry with, by making him pay for not growing fast enough?

What happens with the money?

These numbers tell us one thing: Spotify, and all the other streaming services, are sincere when claiming to be paying out most of their income to rights holders. Spotify’s royalty payments exceeded 880m Euros last year. Where does all that money end up? The contract between Spotify and Sony Music is just one piece of the puzzle. Now we need a contract between a label and an artist that feels ripped off. Many artists in the past have been vocal about being screwed. But they mostly directed their anger at the wrong people: the streaming services that barely keep enough money themselves to run a profitable business. We’re not saying they’re saints. We explained the flaws in the payout structure of these services in the past. But at least they’re trying. Everybody in the music industry claims to have the artists’ interests at heart. After all, no one in this business would have a job without the artists. So let’s see who puts their money where their mouth is.

Spotify claims to be paying out most of their income, and that has now been proven. Sony claims to pay out advances to its recording artists. What about the songwriters? And how much does the label forward to artists? We are expected to trust a major corporation, that mainly serves stockholders, to have its assets – sorry: artists – interests at heart. This isn’t meant to be major label bashing; it’s just how a business of that scale operates – a mundane fact of today’s economy. A corporation of that scale can say all kinds of fancy sounding things, as long as – in the end – the people who invest in that corporation are satisfied. And the exciting and wonderful music industry offers a lot of these fancy sounding empty phrases; PR proclamations of  “serving the artist” and “bringing music to the people”.

Moving with the times

A company that is really interested in growing an artist won’t take away a portion of the artist’s share for breakages and returns in the digital age. “Who’s broken a digital download recently? Who’s returned a stream?”, asks Horace Trubridge of the Musicians Union in an article by Rhian Jones in The Guardian. A company that is really interested in growing an artist will just admit that distribution costs have dwindled and bring down its share accordingly. It will not wait for it to become common knowledge that some artists are still receiving a cut from streams that reflects the CD era, when distribution was an expensive and elaborate task indeed. Sony even receives what is essentially free advertising space on Spotify, and it can rent out that space to third parties and charge them for it. What happens with those savings and additional earnings?

Ring in the new age

The people working at these huge corporations are great people who just want to release great music. And they are really good at it. Even the execs at the very top can’t be blamed. Free market forces guide their decisions. All we’re trying to point out is that we’re approaching the age where something as precious, as emotional, and as individual as music shouldn’t be exposed to these forces any longer. Creativity flourishes when it is shared, when data is openly available. The tech sector has been proving this for years now. In an age of musical abundance labels are more important than ever. It’s just time their importance is adequately represented next to the artist’s when it comes to splitting the earnings.