Spotify's Direct Deals with Artists in Trouble?

After Spotify’s initial public offering (IPO), many developments have taken place on the Swedish music streaming giant’s theoretical “direct deal” licensing with independent artists. Spotify has faced many roadblocks along the way and seems like it's neverending. Spotify has been leaning towards the “Big Three” major labels (Universal Music Group, Sony Music Entertainment, Warner Music Group) for years to gain access to the most prominent artists of the world and their recorded music, which typically are 100% copyright-owned by those labels. Permission was granted (in lew of equity), labels thrived in the digital music era, and Spotify grew. After the IPO and the Big Three (and the independent digital rights-focused Merlin Network) made out with a nice liquidation, Spotify allegedly began negotiating directly with independent artists and their managers. “Independent” in this case means do-it-yourself (DIY), as opposed to being signed to an independent label. Radically, Spotify and artists would cut out the “middleman.” The value for Spotify is that they could pay out less to the artist than their label, and the artist would receive a higher percentage than they would probably derive from their label anyway. After quickly emphasizing Spotify's "two-sided marketplace" strategy and the large opportunity for the global streaming market still ahead, Daniel Ek referenced recent reports about direct licensing and sought to clarify its reasoning. The goal, he said, is to get "as much music on the Spotify platform as we possibly can." "As a platform, we've always licensed music from rightsholders both large and small, and we will continue to license music from whoever owns the rights," he said. "The long-term success metrics for this platform is growing the number of creators on our platform, growing the number of creators using our promotion, marketing, and career-management tools, and the number of artists and labels paying us to use those tools and services." He continued, "Licensing content doesn't make us a label, nor do we have any interest in becoming a label. We don't own any rights to any music, and we're not acting like a record label. Our agreements are specific to Spotify and are not exclusive. We want to grow the number of labels and creators on the platform, as well as the number of creators using our tools and services. So, in some cases, we license from labels, and in others from artists if they own the rights to their music. We believe there has been some confusion surrounding our intention and for us its really about providing the largest opportunity for the widest group of creators and artists to bring their music to Spotify." A valid argument for the major labels is “100% of nothing is still nothing.” Here’s what happens in the absence of a major label: no six-figure advances, no access to a decades-deep radio promotion network, no physical distribution infrastructure, no global marketing system in place. In other words, there’s no career bandwagon to jump on…just a long road to walk. However, for several independent DIY artists, that’s precisely the road they want to take. Enabled by a laptop and WiFi, select artists have proven to be quite capable of connecting with their fans in productive and profitable ways. The digital aggregator, forged in the 1990s and itself coming in several flavors ( like CDBaby, Tunecore, DistroKid), became these artists’ gateway to Spotify, Apple Music, Beatport and many other digital streaming providers all over the world. Spotify is reportedly extending advances and appealing business terms to independent artists in hopes of persuading them to license their music directly with the streaming music app instead of going through a third-party distribution service. Billboard reported that some of the company’s deals had promised artists and their management “several hundred thousand dollars as an advance fee for agreeing to license a certain number of tracks by their independent acts directly to Spotify.” “In some cases,” Billboard also said that Spotify is offering a 50 percent cut of per-stream royalty rates. That’s less than the percentage major labels earn, but artists end up with a significantly smaller portion of those label royalties, so Spotify’s proposal could be enticing. Spotify’s strategy also seeks to cut those distribution services out of the picture by allowing artists to license the same music that Spotify is getting to other platforms while “retaining full revenue” from those deals. There’s no exclusivity involved. Additionally, artists maintain ownership of their master recordings, which is rarely the case under label contracts. It’s been difficult to gauge just how successful these direct Spotify signings have been, with the streaming service remaining tight-lipped about the deals. This might be something to do with the fact that less than 12 months’ time, Spotify will have to negotiate new licensing deals with all three major record companies – who are not happy with Spotify However, thanks to Chartmetric, we now have an idea of how the careers of artists who are understood to have ‘possible’ direct deals with Spotify have played out so far. The report contains an important disclaimer: Even if any alleged Spotify direct deal is no longer current or never even existed, the DIY artists’ legal and creative status is still worth measuring against major-label acts. The report also compares five Spotify direct signings – all anonymized – with five major label artists. It tracks reach and engagement on Spotify, YouTube, Instagram, Facebook, SoundCloud, and Twitter, as well as fans by region. The major label artists cited are Kali Uchis, Khalid, Charli XCX, Billie Eilish, and Halsey. Of the five DIY artists, the genre is described as electronic-tinged with notes of indie pop, dance, and hip-hop; three are ex-US, and two are from the US. It seems that DIY artists are more likely to be able to earn revenue from all corners of the globe, while major label signings are, generally speaking, earning the majority of their income from local territories. This is likely to be due to the territory-centric corporate structure of the major labels encouraging local executives and staff to focus on domestic repertoire, as noted by Chartmetric.