Spotify starts signing artists directly

The big news today is that Spotify is offering advances (in the hundreds of thousands of dollars range) to select indie musicians and talent managers in exchange for licensing their music directly to Spotify. By direct licensing, they will get up to a 50% share of royalties plus retain all rights to their work.

(link)

The streaming platform is asking these artists not to refer to themselves as being “signed by Spotify.” Spotify’s deals with the major labels prohibit it from competing with them in a substantive way, although that leaves a grey area depending on how you define competitive.

There has always been speculation that Spotify would eventually leverage its scale to cut out the major labels – founder/CEO Daniel Ek said as much in his early pitches on the startup’s strategy. The company has always publicly denied that’s the plan when asked about it though. This news doesn’t mean they’re moving in that direction, but it certainly suggests they are looking to test some aspects of the concept.

Most of the revenue that Spotify takes in goes to the labels and publishing companies that own the songs’ copyrights, and only a minority of those royalty payments end up in the pockets of the artists. Cutting out the middleman would be a big financial boost to both Spotify and the artists (of course, labels and publishers reject the characterization of them as mere middlemen).

Spotify needs to play ball with 3 major label groups who control most of the music in the world that consumers care about; if they walk then Spotify loses its whole value proposition (the music). An attempt to compete with them would be very risky.