Sony’s Contract With Spotify Leaked, And It’s Something Else
Spotify is obviously one of the leading streaming services in this day and age. They’ve inked deals with Uber, Starbucks, and we’re going to guess that’s just the beginning – as long as they’re able to play nice with music labels who clearly wear the pants in every relationship. From what we’ve heard so far, between Spotify and Soundcloud‘s relationships with the labels, they’re quite the agreement. But until today we’ve never really had a first hand look at exactly what makes up these obviously complex relationships.
As you may remember, Sony has been the victim of some serious leaks – that have been linked back to North Korea, possibly as retaliation for The Interview movie (that wasn’t even that good). The leaks were of course enlightening, but contributed to irreversible damage to the media conglomerate.
Probably the most enlightening for us in the music business though, is Sony’s agreement with Spotify. The contract, signed in 2011 before Spotify made its debut in the U.S. is a 42-page document that reveals the play ratios between artists, the labels, and the streaming service.
As Verge details, a few things really stick out.
1) Spotify had to pay Sony an advance of $42.5 million over the course of two years with a third year option. There’s now word if any of this was passed down to the actual talent, but word is labels usually keep advances for themselves.
2) There’s Most Favored Nation tactic in place, meaning that if Spotify strikes a deal with a rival for even more, then Spotify has to pay Sony the difference. Not bad right?
3) A good portion of the document is in regards to advertising revenue. Sony was to get 15% “off the top” … AND Spotify had to allot $9 million in ad space exclusively for Sony’s use, AND that’s not including the free advertising space they had to promote their own artists.
4) The final #’s in the document revealed just how much Sony was making. It ended up being about 60% of Spotify’s monthly revenue at that time. As Verge explains, “So if Spotify earned $100 million in gross revenue, the labels would get $60 million. So if Sony Music made up 20 percent of the streams, it would take home $12 million.”
Not too shabby… would love to see a table comparing how many record/single sales it would take them to get an easy $12 mil.
5) The contract then has a clause which dictates that if Spotify’s growth didn’t meet projections, their return was subject to increase. But if the growth was even higher, then Sony had to cough up the difference to Spotify.
It appears as if the vast majority of streaming revenue goes directly into the label’s pockets, so the artists’ collective beefs should be with the label rather than the streaming service.
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