Sony is making a ton of money off Spotify even if artists aren't

by Richard Howard

May 21, 2015

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One of the biggest gripes leveled against streaming services by the music industry is that the artists are being paid mere pittances for their tunes in the form of ‘per stream’ royalty payouts that are usually fractions of a cent. Meanwhile, the streaming services insist that they’re paying out huge amounts as is and upping these payouts would be extremely difficult. As companies like Spotify skyrocket in value, this has been hard to believe. However, a contract between Sony Music Entertainment and Spotify is shining light on the fact that Spotify & Co. are almost certainly telling the truth and that artists like Taylor Swift who feel they’re not being properly compensated should probably be talking to their own labels.

Like most contracts, this one is pretty complex. The Verge, which first obtained the contract, gets into the nitty gritty of it or you can check out the cliff notes here. However, what’s crystal clear is that Sony has created multiple revenue streams and is making mad cash off of Spotify. First off, Sony can be paid up to $42.5 million in advances alone – recoupable by the service only if revenues exceed the advance amounts. The revenue share between labels/publishers and Spotify is a 70/30 split in favor of the former – so whatever percentage of streams were Sony artists, the label will take that fraction of 70% of Spotify’s gross revenue. But wait folks; there’s more: Spotify is contractually obligated to provide Sony with $9 million worth of ad space. And while not having to pay for ad space is pretty snazzy, the contract further decrees that, should the label feel like selling that ad space for a little extra scratch in their pockets, this is a-ok. Now throughout the document, there are stipulations that ensure for many of these revenue streams Sony receives either a hefty minimum or an alternative – only, of course, if that alternative is greater in value. Apparently suffering from label-envy, however, the label went even further and incorporated a ‘Most Favored Nation’ clause. Basically, it says if any other label gets a better deal, Spotify needs to pay the difference between what Sony earned and what those other lucky buggers made. Astounding.

So the question on everyone’s mind is – beyond the direct royalties, how much of this haul (if any) is Sony paying the artists? As I’m sure you already guessed – nobody knows. While history would lead us to assume the lion’s share goes to the label itself, we just don’t know. Unsurprisingly, both Sony and Spotify declined to comment on the story. Still, after seeing this contract, it’s looking more and more like the labels may be the bigger culprits in the short-changing of artists when it comes to streaming services.

Tags: Music, News, Spotify, talyor swift

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