Sony’s Contract With Spotify Shows How Labels Actually Make Money Off Streaming
With Jay Z's purchase, re-branding and re-launch of Tidal, the digital music streaming arms race has reached a fever pitch. The various services--Rdio, Apple's Beats Music and the biggest of all, Spotify--have tried to separate themselves, by means of price, library size or in- and out-of-browser user experience. There's also an ethical component, with artists, fans and the services themselves bickering over the competing price-per-stream figures and how that pot of money is distributed to artists. Now, a leaked copy of Spotify's contract with Sony shows that that conversation has been a red herring of sort. Yesterday (May 19), The Verge posted a 42-page agreement between Sony and the streaming giant. Signed in 2011 (before Spotify launched in the United States) and covering that year, 2012 and with a Sony option for 2013, the contract includes some $42.5 million in advance money covering those three years, or an average of a little over $14 million annually. (The actual splits were $9 million, $16 million and $17.5 million, in that order.)
What's important is that the contract does not stipulate what Sony does with that money. As per Rich Bengloff, President of the American Association of Independent Music, or A2IM (and corroborated by industry rule #4080), money that is paid to labels that does not constitute direct usage usually "doesn’t end up getting shared." Advances from streaming companies would not be considered direct usage. So while the services go back and forth claiming each one pays out more money per stream, the bulk of the capital in play goes directly into the record company's coffers, never to see the light of day.
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