Sony/Spotify Digital Distribution Agreement

From the folks over at theverge comes the (expired, and as of publication of this piece, deleted) contract between Sony Music and spotify. Note that in the first section there is a Confidentiality Agreement, which it appears has been breached. This agreement suggests that artists are missing out on money that the labels have negotiated strongly to receive.

Key points:

1) Spotify can keep up to 15% of revenue from ad sales. Interestingly, Spotify also has to give Sony ad space (a “credit for advertising inventory”) of $2.5 to $3.5 million each year at heavily discounted rates. Sony can do what it wants with that space — promote its own artists or even sell it to third parties at any price Sony can demand. Sony also gets even more free ad space to promote its own artists on.

2) The crazy formula by which calculations are made for what the label (not the artist) will get paid per stream is in Section 10 of Exhibit A, the “Term Sheet”. Here is evidence that paid subscriptions mean more money to the label, but that doesn’t translate to artists being paid. The clause provides that for Spotify’s free tier — the “usage-based minimum”, Spotify pays $0.00225 up to $0.0025 per stream (a discounted, agreed upon, contract rate) and, for the “per subscriber minimum” — the premium tier, the calculation is based on Sony’s label usage percentage (their share of spins on Spotify), then by the number of premium users on the service, then by $6.00

3) Spotify pays $25 million to Sony Music in advance for the 24-month deal, with an option for another twelve months. Spotify recoups the advance if earnings (paid subscribers, ad sales) exceed the advance amount in each contract year.

4) As The Verge points out, the contract does not specify what Sony does with the advance money. Typically advances are kept by the labels with no consideration paid to the artist.

The key here is that Spotify might not be the devil in this debate about streaming music services and paying artists fairly. Spotify claims it is paying out 80% of its revenues to “rights holders”, the labels. Numbers can be crunched and one can figure that Sony is pulling in millions from Spotify alone.

Aloe Blacc penned a piece for Wired in 2014 indicating how he received less than $4,000, albeit from Pandora, for co-writing a huge hit, Avicii’s “Wake Me Up”. It should be mentioned that radio-type streaming pays less than on-demand streaming services to rights holders.

The evidence here is that Spotify is paying rights-holders. Have the numbers increased or decreased as Spotify grows and gains more paying subscribers? If you allow, for the sake of argument, that Spotify is paying what the market will bear (whether or not that is a fair amount), what is the label doing with the money?

Originally published at