Sony Forces The Verge to Remove Its Spotify Contract…

sopranostare

Yesterday, we pointed to concerted efforts by Spotify to censor major publications from reporting on its contract with Sony Music Entertainment.  That includes Billboard, the Wall Street Journal, and the New York Times, all of whom frequently cover Spotify but offered virtually zero coverage on one of the most important leaks of the year (and, a document that explicitly details why artists are receiving so little from Spotify).

Now, Spotify is taking its muzzling initiative a step further.

Spotify, along with Sony Music, have now forced the Verge to remove the contract from its original story.  The Verge cited ‘a copyright claim’ as the reason.


verge_copyright

(The ‘new’ Verge article)

 

The story, by Verge journalist Micah Singleton, still contains a comprehensive summary of the contract, though that summary may also be ripped down.

So where’s the contract?  Sadly, we didn’t retain a copy in time, but we’re looking around.  If you have a copy, please send it to [email protected] immediately.  It goes without saying, but your identity will absolutely remain confidential.

 

More as it develops.  Written while listening to Huxley on Songza.

56 Responses

  1. Anonymous

    Too late, the damage is done.

    Nobody will ever trust Spotify again…

    Reply
    • dfsaf

      you obviously didn’t read the agreement or even the article. it’s sony that’s in the fault….read the article dude before commenting

      Reply
      • Vail, CO

        I just read the article. Doesn’t say Sony made them take it down anywhere.

        Reply
        • Anonymous

          “Doesn’t say Sony made them take it down anywhere”

          It really doesn’t matter who sent the takedown notice, either.

          The contract proves that Spotify systematically deceives its artists.

          That’s all we need to know…

          Reply
          • Ash

            That sounds like the pot calling the kettle black. Only on DMN will you see people defending major record labels over Spotify…

          • Anonymous

            Could you please tell me where I — or anyone else — defended Sony?

            Hm?

            Here’s one of my replies to Paul:

            “Nobody’s defending Sony here, Paul; we all know how the labels work.

            But Daniel Ek took their money and screwed the artists like nobody has screwed them since Colonel Parker.

  2. Anonymous

    Don’t you just love this part of the Verge article…

    “The clause states that gross revenue includes “actual out-of-pocket costs paid to unaffiliated third parties for ad sales commissions (subject to a maximum overall deduction of 15 percent “off the top” of such advertising revenues).” In English, that means that Spotify can keep up to 15 percent of all advertising revenues generated by the ad sales that are handled by third parties hired by the streaming service.

    Reply
    • Anonymous

      Here’s more about Spotify’s secret 15%:

      “How much money that amounts to depends on a number of factors, including what percentage of Spotify’s ads are sold by third parties, and if it chooses to keep the full 15 percent to itself. Spotify may also use these funds to recoup the commissions it has to pay to the third-party companies it uses to sell its ads.

      But regardless of the amount, it’s money that is not accounted for in Spotify’s gross revenue total, which is split 70/30, with 70 percent going to the labels and publishers and 30 percent to Spotify. Spotify pulled in €98.8 million ($110M) in advertising revenue in 2014. The company has gone to great pains to map out for the public exactly what it pays, in part as a public relations move to try and counter criticisms about what it pays artists. But in that detailed explanation, it never mentions this 15 percent.”

      SOURCE: The Verge

      Reply
    • Adam

      Sigh. Shows your ignorance of the industry.

      That 15% that you assume Spotify is keeping is actually going the to the third party who brought in the ad sales. It’s a standard rate for this type of deal.

      Reply
      • Anonymous

        Let’s try once again:

        it’s money that is not accounted for in Spotify’s gross revenue total, which is split 70/30, with 70 percent going to the labels and publishers and 30 percent to Spotify. Spotify pulled in €98.8 million ($110M) in advertising revenue in 2014. The company has gone to great pains to map out for the public exactly what it pays, in part as a public relations move to try and counter criticisms about what it pays artists. But in that detailed explanation, it never mentions this 15 percent.”

        SOURCE: The Verge

        Reply
        • Anonymous

          I wonder who leaked the document. This is the best news Apple and Tidal could hope for.

          Reply
          • Anonymous

            …and perfectly timed so it completely destroyed Spotify’s press event…

      • ...And you Can KEEP Trying...

        As Adam said, your focus on – and misinterpretation of – this provision merely shows your ignorance of the industry. The 15% is actually paid the to the third party who brought in the ad sales. It’s a standard rate for this type of deal. You will find it in many, many deals.

        It is NOT money that Spotify is keeping or can keep. It is being recognized as fees that Spotify would have to PAY, to third parties, for ad services. If they don’t pay it, they don’t keep it. They can only reduce gross revenues by “up to” that amount, specifically to cover actual third party fees.

        Reply
  3. Paul Resnikoff
    Paul Resnikoff

    Just saved the entire Verge article locally, as I’m fearing the entire article will be ripped down on ‘copyright grounds’

    Reply
  4. Anonymous

    If this is the end of Spotify, we should use the opportunity to rethink the entire streaming concept:

    Is there any way to make it useful for individual artists?

    Or does it only work for labels with large catalogues?

    Reply
    • shlomo

      thanks sam- you’re apparently smarter than most who thought this contract wouldn’t get removed immediately. with that being said i thought the full contract was 40 plus pages and google docs only has the first 20 pages. correct?

      Reply
  5. Adam

    Paul – seriously!? Sony forced the take down. The Verge confirmed that. To say it was Spotify is just plain wrong. Learn to fact check.

    Reply
    • Jody

      Agree, but Paul wouldn’t get any clicks if he replaced “Spotify” with “Sony” in the headline.

      Reply
        • Anonymous

          I haven’t seen it either — but then again, it doesn’t make any difference who sent the actual takedown.

          Spotify has screwed its artists big time, and there’s no way for Ek to weasel himself out of this one.

          Reply
          • Paul Resnikoff
            Paul Resnikoff

            There’s a valid point being made here. Sony’s lawyers may very well have done the threatening, and they have sent me threatening letters.

          • Anonymous

            Nobody’s defending Sony here, Paul; we all know how the labels work.

            But Daniel Ek took their money and screwed the artists like nobody has screwed them since Colonel Parker.

          • Adam

            “Spotify has screwed it’s artists”!?

            Spotify doesn’t have artists.

            Spotify was desperate to launch in the US and really had zero negotiating power when doing this deal.

          • Anonymous

            “Spotify doesn’t have artists”

            Not for much longer… 🙂

            “Spotify was desperate to launch in the US and really had zero negotiating power when doing this deal.”

            So they took the deal and screwed the artists to no end — deliberately and systematically — while Mr. Ek made his millions (or is it billions now?).

        • Anonymous

          Paul, there’s another reason for the massive self-censorship we see in the media regarding the Spotify contract:

          Several sites are Spotify-partners now — Slate is a good example!

          Reply
        • Jody

          From Verge: “At the request of the copyright owner, the contract has been removed.”

          Where does it say Spotify?

          In my opinion, you deliberately chose to write the headline the way you did as click-bait for an audience who is fueled by your demonization of Spotify. Let’s assume your sources are correct that Spotify is making phone calls to dissuade others from publishing confidential information. Do you really think Mr. Walker’s team at Sony has no concerns of the information being made public? Do you truly believe that the trepidation is from just one party? It is in the interest of both parties to have confidential information remain confidential. But, to your credit, you’re getting engagement around your article. Kudos for that…

          Reply
          • Paul Resnikoff
            Paul Resnikoff

            Ugh… something like that. Well, thanks all for bringing that new information to light, I changed the title. Sorry about puncturing your well-inflated theory though.

  6. Sam

    I have tried emailing a link and posting it here. My outgoing mail thinks you’re spam, so blocking it. YOUR site is blocking my post (2 attempts) because of the link I’m guessing.

    Reply
    • Sam

      I ALMOST grabbed a copy yesterday, but just figured all the reporting sites (ahem) would be smart enough to do that. 😀

      I’ll try using a gmail account to send you the link. It’s a google generated HTML version of the document, from their cache.

      Reply
  7. DavidB

    Excuse my naivety, but who can claim copyright in a contract agreed between two parties? One party? Both parties? Jointly or severally? Just curious.

    Reply
    • djg

      Doesn’t sound like a bad question to me so I will try and answer, maybe some other copyright attorney can correct me if I’m wrong

      Any author of an original expression of an idea can claim copyright. In this case there is also a work made for hire question and joint work question.

      Applying these basic rules Sony (the employer of the lawyer who drafted the original) can claim ownership of the original text of the contract. Excluding any public domain boiler plate language.

      If Spotify added non de minimis tex then they can claim that a joint work with Sony was created.

      So either party can claim ownership and demand that the contract be taken down.

      Reply
      • Sarah

        Good question and good answer.

        I probably would’ve kept this up on a fair use argument …. even though it included the entire work. Newsworthy and public benefit arguments, obviously not competing with the original in the market, etc.

        The only case I know of that directly addresses copyright infringement of a contract involved a competitor – one insurance company copied key, unique provisions of another insurance co’s policy, that the creator reasonably felt provided it with a competitive advantage in the relevant market (AFLAC vs Assurant). So I don’t think there is much case law exactly on point and the facts are materially different here (news vs. direct competition for customers), leaving a judge free to easily find fair use in this instance. Not a guaranteed slam dunk (a fair use argument rarely, if ever, is) but reasonably strong, especially in the context of the article.

        Though it’s not purely legal reasons that inspired the Verge to remove it, I’m sure. They likely assumed that, by the time they agreed to take it down, multiple people had already saved copies – they did their “duty” by putting it out there in the first instance, and there’s insufficient benefit from keeping it up to justify the additional risk of legal action or creating hostile relationships.

        Reply
        • Myles

          “They likely assumed that, by the time they agreed to take it down, multiple people had already saved copies”

          Hah! Is that another dig at Paul because he’s getting beat up here in the comment section

          Reply
  8. Ash

    “Sony Music is likely getting considerable payouts from Spotify each year, but what it does when it gets that money — and how much of those payments actually make it down to the artists — is still unknown. ”

    “Some artists have clauses in their contracts to get a larger share of the streaming revenue, and some artists are still operating under CD-era contracts that only give them 15–20 percent of their streaming revenues.”

    “In the wake of Swift’s departure from Spotify, many musicians rallied to her cause, vilifying streaming services that paid a fraction of a penny per play. But this contract makes it clear — the pay per stream rates aren’t the only issue. According to its financial disclosures, the majority of Spotify’s revenue, around 80 percent, has been flowing out the door to the rights holders. “You can’t squeeze blood from a stone,” said David Pakman, the former CEO of eMusic and partner at Venrock. “Your beef can’t be with Spotify anymore.” At least not with Spotify alone.

    Sony Music and Spotify declined to comment.”

    Those are several important quotes from the end of the article that were not even mentioned in this DMN story. Honestly, although I regularly check this site, it’s stories like this that are exceedingly misleading and do not even provide a link to the source material (which is not only insulting to The Verge and other news outlets that have actually DONE the research) and allows for a retelling of a story to fit a particular agenda, in this case, trashing streaming.

    Everyone here is damning Spotify but if you actually READ The Verge article, you see that other than the 15% advertising revenue that isn’t counted in Spotify’s gross, they pay out a ridiculous amount straight to Sony – none if which is guaranteed to be seen by any of the artists. Sure, this isn’t the 90s where it was hard NOT to make money, but it sure seems like there’s enough money going around that artists should be getting paid more than they are.

    I feel like you are all missing the point of the streaming debate. Everyone is so focused on payout rates and free listening and all of that while completely ignoring the fact that the major labels have muscled their way into owning a stake of said companies and have guaranteed advances with ridiculous terms that give them an unfair advantage over everyone else, and do not require them to pay anything worthwhile to their artists. When Spotify says they pay out as much money as they do to music rights holders, I believe them. It just so happens that the major labels own the masters (and in most cases, a good portion of the publishing, too) and you couple that with individual artist contracts and it’s no wonder songwriters and artists aren’t making more than a couple hundred or thousand dollars on hundreds of thousands and millions of streams.

    No, streaming is not as lucrative as downloads. But, to try to vilify Spotify as the reason no one is making any money is so incredibly short-sighted and arrogant. Articles like this that probably didn’t take more than 10 minutes to write are clearly the reason why DMN’s reputation isn’t too high up there on the journalistic integrity ladder. I think there are certainly good writers here, like Ari, who genuinely care about the music business and put a lot of thought into their articles, but it’s very disappointing to read posts like this that make 0 effort and only push an agenda.

    As for the commentators on this article, and on this site as a whole: you clearly are living in some delusional, dream world thinking defeating streaming will solve any sort of problem, that eliminating the free tier will encourage more people get more money. Clearly, you aren’t part of the younger generation and have no idea how they listen to music, find music, and think about music. It’s the 21st century. Make peace with your on nostalgic idea of what the music industry once was and either move on and try to adapt or retire and continue yelling at the kids to get off your lawn. It doesn’t really matter to us.

    Reply
    • Me2

      Now that the labels have muscled their way in, we can’t expect an environment that is equitable to all players, despite companies who would like to position their image otherwise.

      Reply
      • Anonymous

        Tidal got a bad start, but they couldn’t ask for a better opportunity than this (goes for new services like RepX, too).

        A lot of artists will want to bypass labels and avoid scammers like Spotify after this.

        Reply
        • Sarah

          Thanks for the mention… busy lately preparing for our upcoming beta launch. It seems that there’s going to be tons of competition in the near future – I’ve even spoken to several label owners who are also trying to get into it with their own platforms – so the next 12 months should be exciting times.

          With all of the activity in this space, I’m quite confident that (no matter who it comes from) you’ll start having better, more sustainable options for streaming over the next year or two – and that’s a wonderful thing for everyone. 🙂

          Reply
          • Anonymous

            “better, more sustainable options for streaming over the next year or two”

            I like that word.

            —–Keeping my fingers crossed for you guys—–

    • Jon

      I agree that Spotify’s obligations aren’t to the artists but to the SRCOs, and it wouldn’t be surprising to see that a lot of artists’ deals with majors leave most streaming revenue in the latter’s hands. But there is a world of artists and songwriters outside of those deals who are getting 100% of the royalties due, and the putative streaming success stories from that world look pretty unconvincing to me, where they exist at all. Those royalties are still tiny. On the songwriter/publisher side, they’re absolutely pitiful.

      Reply
    • quake

      Paul has his own sources you know You should know his favorite line “Several inside sources informed DMN….” Haha this is is a big joke,

      Reply
  9. tcooke

    All artists need to know this, but keep the message simple. Sony and all majors are fucking you. Spotify and 99.99% likely Apple will (with their deals), are fucking you behind your back so fucking hard. Keep it simple. Try and get the message out there, but keep the message simple, none of this 15% ad revenue 3rd party stuff. I hope you all understand why. It’s not because artists are simple, it’s because the bottomline of this needs to it get out there, sink in, and instigate change. Are there really any true artists out there today? Show me. Again, spread the message. Keep it simple.

    Reply
  10. Musicservices4less

    Since I have a few minutes this morning, let’s have a little fun. Assume that I did get a copy from the Verge site and retained it. Further assume that what is about to follow is the language of the contract. I took the pdf and saved it as a Word doxc file. If there is a better way let me know.

    1′ SONY MUSIC
    550 MADISON AVENUE, NEW YORK, NEW YORK 10022-3211, UNITED STATES

    Spotify USA Inc
    76 gth Avenue,
    Suite 1110, 11th Floor New York
    NY 10011
    United States

    DIGITAL AUDIONIDEO DISTRIBUTION AGREEMENT

    This letter agreement together with the term sheet (the “Term Sheet”) and any schedules attached hereto, which are incorporated herein by reference, will constitute the entire agreement between SONY MUSIC ENTERTAINMENT (a Delaware general partnership) (“Label”) and SPOTIFY USA INC (a Delaware corporation) (“Company”) regarding, inter alia, the exploitation of audio recordings and short-form music videos embodying the performances of various musical recording artists via Company’s online and mobile digital distribution service, as owned, controlled and operated by Company (the “Agreement”). Any terms used in this Agreement but not defined herein will have the meanings ascribed to them in the Term Sheet. Unless expressly provided to the contrary herein, to the extent that any provision of this Agreement conflicts with any provision of the Term Sheet, the provisions set forth in the Term Sheet shall govern and control.

    Notwithstanding anything in the Term Sheet, the Territory of the grant of rights (as defined in Paragraph 3 of the Term Sheet) shall only be effective for the United States of America and Canada, in the case of the latter subject to execution of an agreement in the form attached to this Agreement as Exhibit H by the Label’s applicable principal that owns or controls the rights in Label Materials (as defined in the Term Sheet) in Canada (each, a “Label Affiliate Agreement”). Label shall procure that such affiliate or licensee in each country of the Territory enters into a Label Affiliate Agreement; provided, however, that such affiliate will enter into a Label Affiliate Agreement only at its sole discretion and upon its own volition and further provided that, notwithstanding anything to the contrary herein, Label’s provision of Label Materials to Company pursuant to Section 6 of the Term Sheet shall be deemed to convey the necessary rights in respect of Canada. Each signatory to a Label Affiliate Agreement shall be referred to herein as a “Signatory”.

    1. Confidentiality; Press Releases:

    (a) Each party (each a “Disclosi ng Party”) agrees that it will, and it will instruct in writing its respective attorneys, accountants and other professional advisors (collectively, “Advisors”) to, hold in confidence and not communicate, transmit, publish, disseminate or otherwise disclose any of the terms and conditions of this Agreement or any information regarding the other party’s business learned in the course of dealing or performance hereunder (collectively, “Confidential I nformation”); provided, however, that nothing in this subsection 1(a) will prohibit disclosure of such Confidential Information: (i) by each party to its respective financial officers, management, bankers or others as may be reasonably necessary in the operation of its respective business; (ii) by each party to its respective Advisors to the extent that such disclosure is in the opinion of such Advisors required to enable such Advisors fully to represent the party concerned; (iii} in connection with any legal or governmental proceeding; or (iv) to any judicial, governmental or regulatory body. Notwithstanding anything to the contrary herein, Confidential Information shall not include information that: (i) at or prior to the time of disclosure by the Disclosing Party was known to or independently developed by the party receiving such information (a “Receiving Party”), except to the extent unlawfully appropriated by the Receiving Party or a third party; (ii) at or after the time of disclosure by the Disclosing Party becomes generally available to the public through no wrongful or negligent act or omission on the Receiving Party’s part; (iii) the Receiving Party receives from a third party free to make such disclosure without breach of any legal obligation; and/or (iv) is required to be disclosed pursuant to any statute, regulation, order, subpoena or document discovery request.

    (b) No press releases or other public statements are permitted without prior mutual written approval.

    2. Reporting and Payment:

    (a) Company will use reasonable endeavours to collect and deliver to Label on or before 5.00 PM (EST) each Monday machine-readable reports containing information in respect of all transaction activity for Label Materials exploited by Company hereunder during the seven (7) day period commencing on the Monday of the preceding calendar week through to the preceding Sunday of that calendar week in accordance with the reporting specifications attached hereto as Exhibit B (each, a “Weekly Report”). Company will collect and deliver to Label Weekly Reports at a frequency no less than once per week. Notwithstanding the foregoing, if Company provides additional categories of data to any other content providers, such as aggregated usage and exploitation comparisons among record label groups, then Company shall provide such additional data to Label on terms and conditions that are reasonably equivalent in all material respects to the terms and conditions governing Company’s provision of such additional data to such other content providers.

    (b) (1) Company will compute all amounts payable to Label pursuant to the Term Sheet and any other payments accrued hereunder on a country-by-country basis as of the end of each calendar month hereunder (such proceeds and other monies, the “Label Fees”).

    (2) In connection with each such calendar month, Company will send the Label within 15 (fifteen) business days thereafter (i) an accounting statement covering the calculation and determination of the
    label Fees and other sums so accrued and payable in respect of the calendar month concerned in the country concerned (each, a “Financial Statement”, which shall include as a minimum the fields listed in part (ii) of Exhibit B); and (ii) a machine-readable report containing the data and information described in (and otherwise in accordance with) the reporting specifications attached hereto as Exhibit B (each, a “Monthly Report”)

    (3) Upon receipt of each Monthly Report and Financial Statement, Label will prepare and send to Company a full invoice in respect of the balance of Label Fees due and, unless otherwise agreed by the Parties and subject always to the unrecouped portion of any relevant advance payment (as detailed in the Term Sheet), Company shall pay into the bank account designated by abel for such purpose from time-to-time, without offset or deductions of any kind, the Label Fees that have accrued and are payable to the abel on a calendar monthly basis within forty-five (45) days following the date of the relevant invoice.

    (c) Each Weekly Report, Financial Statement and Monthly Report shall only be deemed received by Label once uploaded by Company in an appropriate form to the correct directory on Label’s FTP server using access credentials issued by Label; provided that Label shall be solely responsible for procuring that access to such server is available to Company at all relevant times.

    (d) All amounts payable to Label pursuant to this Agreement are exclusive of any applicable Taxes (as defined below). Company warrants and represents that Company will collect, bear, pay and indemnify Label against any and all taxes, duties and customs of any kind, however designated, levied or based in any way, including but not limited to withholding taxes, anywhere in the Territory with respect to the sale or resale or other exploitation of any products or services by Company, including, for the avoidance of doubt and without limitation, all sales, use, excise, purchase, value-added or similar taxes (other than income or franchise taxes payable by Label on net income earned by Label under this Agreement), including any applicable interest and penalties (individually and collectively, “Taxes”). If applicable, Label will accept appropriate documentation, such as duly completed and valid resale/exemption certificates, satisfactory to Label in the exercise of its sole, reasonable discretion, timely provided by Company to evidence Company’s liability for or exemption from such Taxes. If any claim is made against Label for Taxes, Company will promptly remit to Label the full amount of any such Taxes so claimed, without offset or deductions of any kind. In the event that Company reasonably requests abel to contest the imposition of such Taxes, abel shall do so at Company’s expense provided that Company has posted the required security or payment for the payment thereof with the taxing authority with appropriate jurisdiction over the applicable claim for Taxes or Label. Label shall control any such contest and, upon Company’s written request in each instance, Label will reasonably consult with Company, provided that Company is reasonably available for such consultation. Company’s obligation to indemnify Label for Taxes shall survive the termination or expiration of this Agreement.

    (e) Notwithstanding sub-section (a) above, Company agrees that, no later than July 1, 2011, it shall use reasonable endeavours to start to make available at a designated location marketing reports on a daily basis in a format to be mutually agreed in writing, in each case no later than midday on the day immediately

    2

    following the period covered by such report (each, a “Daily Report”). Provided Company uploads Daily Reports for each day of any particular week, Company shall not thereafter be required to upload a Weekly Report for the same week.

    3. Books and Records:

    (a) Company will maintain accurate and complete records and books of account in accordance with GAAP applied on a consistent basis, which will include, at a minimum, all documentation needed by Label to compute and verify the amounts required to be credited to Label’s account and paid to Label hereunder, and to verify all of the information required to be delivered to or otherwise made available to Label in connection with the performance of this Agreement. Not more than once per calendar year during the Term and the three (3} year period thereafter, upon reasonable advance written notice, Label, or an independent reputable auditing firm appointed by Label, will have the right to examine those books and records at any time during Company’s normal business hours at the place where such books and records are normally maintained, and to make copies of them and extract information from them. For a period of three (3) years following the last day of the Term, Company shall retain all transaction data, customer information and other data or information reasonably necessary for Label to determine and verify all amounts due or payable hereunder and for accounting purposes. If the audit reveals that in the period being audited Company has underpaid Label by an amount greater than ten percent (10%} of the payments due then Company shall bear the reasonable expenses and costs of such audit. Label shall not have the right to audit a given accounting statement more than once.

    (b) Not more than once per calendar year during the Term, upon reasonable advance notice, Label will have the right, at its own expense, to conduct technical audits of the Company for the purpose of observing and verifying the storage, hosting, security, serving, delivery and other use of any materials furnished or selected by Label for use by Company, including, for the avoidance of doubt and without limitation, all hardware and software components and systems utilized by Company, including server logs, and all documentation setting forth Company’s policies and procedures with respect to security features and formats, wherever any such hardware and software components and systems and documentation are maintained or stored, as applicable, including, without limitation, any and all data centers and information technology departments performing services or operations in connection with or on behalf of the Company.
    4. Representations and Warranties:

    (a) Each party represents and warrants that: (i) it has the right, power and authority to enter into this Agreement and to fully perform its obligations hereunder; (ii) it shall comply with its privacy policy and shall not engage in any fraud or any deceptive, misleading or unethical or unfair competitive practices; (iii) it shall not act in any manner which conflicts or interferes with any existing commitment or obligation of such party; (iv) no agreement previously entered into by such party will interfere with such party’s performance of its obligations under this Agreement; and (v) it shall perform in compliance with any applicable laws, rules and regulations of any governmental authority.

    (b) Company hereby represents and warrants to Label that:

    (i) Company is a corporation duly organized and in good standing under the laws of Delaware;
    (ii) Company will not make any use of any customer or end user information except to the extent permitted by law;
    (iii) Company’s operation of the Service in performance of its obligations hereunder (excluding, for avoidance of doubt, the use of Label Materials as authorised in accordance with this Agreement, for which Label assumes responsibility pursuant to Section 4(c)) during the Term will not to the best of the Company’s knowledge violate any law or regulation, or infringe upon or violate the rights of any Person, in whole or in part, directly or indirectly, it being understood and agreed that nothing contained in this clause (iii) shall be deemed to limit any of Company’s indemnification obligations under Section 6(d)(1) below, which shall apply in full force and effect with respect to any and all acts of infringement of a material nature alleged by any persons or entities arising out of the use or operation of any Label

    Materials regardless of the state of Company’s conduct, omissions or the state of Company’s knowledge of the possibility, likelihood or actual such infringement, or the efforts that Company may have undertaken to eliminate entirely or mitigate such infringement;
    (iv) Company will not at any time through Company’s intentional or grossly negligent acts and/or omissions, either directly or indirectly, in whole or in part, cause “viruses,” “worms”, “spyware”, and/or “destructive codes”, or any materially intrusive “adware” that is deployed or embedded without the informed consent and affirmative acknowledgment and permission of the “adware” recipient, to be embodied in or along with the software used by Company in connection with the operation of the Service;
    (v) all streams embodying Label Materials will be served by Company solely from Company Servers and/or, solely to the extent in accordance with the Technical and Security Specifications, served from peer to peer;
    (vi) Company will not knowingly participate in any unethical or unfair competitive practices, including without limitation, product disparagement, or any other practices that are or might be detrimental to Label’s affiliates;
    (vii) except as expressly provided in the Term Sheet, Company will obtain and maintain in full force and effect (at Company’s sole cost and expense) all necessary licenses, permits and other authorizations required by law to operate its business and to offer streams and otherwise use copyrighted audio, audiovisual and other materials as contemplated herein, and all necessary licenses and other rights (including, but not limited to, copyright, patent and trademark rights and other rights and licenses) necessary to provide the services and functions contemplated herein, including all relevant publishing/mechanical licenses, free of claims from any Person;
    (viii) Company will ensure that the Service will not contain or utilise any content or other materials that constitute Objectionable Activities. “Ob jectionable Activities” means, with respect to the Service, any one (1) or more of the following activities that is knowingly caused, controlled, encouraged, induced or facilitated by Company or its affiliates: facilitating and/or promoting illegal activity, depicting sexually explicit images, promoting violence, promoting discrimination, incorporating any materials that infringe or assist others in infringing upon any intellectual property rights, engaging in the endorsement of political positions or political candidates, or engaging in the sale or advertisement of tobacco, firearms, pornography, or religious causes as Label deems in its sole discretion to be objectionable;
    (ix) Company will not make any use of any Label Materials, or authorize any third party to make any use of any Label Materials, except as specifically permitted in this Agreement;
    (x) Company will not cut, edit, change, add to, delete from or revise any Label Materials without the express prior written consent of Label in each instance, nor will it facilitate such activities by third parties including end users of the Service;
    (xi) Company will not alter or delete any title, credit or copyright notice, any trademarks or service marks, or the talent, writing, producing, directing or music credits contained in the Label Materials; and
    (xii) Company will not (A) attempt to pledge, mortgage or otherwise encumber the Label Materials, Company’s rights under this Agreement or any other tangible or intangible property of Label provided to Company pursuant to this Agreement or otherwise furnished or provided to Company, or (B) contest, attack or challenge the validity of any of Label’s or its licensors’ copyrights, patents, trademarks or other intellectual property rights or licenses, or assist others in doing any of the foregoing.

    (c) Label hereby represents and warrants to Company that:

    (i) it owns or controls the Label Audio Recordings and Label Video Recordings and related materials and it has the power and authority to enter into this Agreement;

    4

    (ii) the use by Company of the Label Audio Recordings and Label Video Recordings (including without limitation all artwork and biographical material supplied hereunder) will not infringe any third party rights; and
    (iii) Label shall be solely responsible for obtaining any and all necessary sound recording and audio-visual master licenses and consents, and for making all associated payments due to Label Artists and any and all producers, remixers, directors, unions or other third parties to whom monies fall due, in respect of Company’s exploitation of the Label Audio Recordings and Label Video Recordings (subject always to Section 4(b)(vii) above) together with any payments due to owners of copyright in any artwork supplied hereunder.

    5. Termination:

    (a) {1) Upon the occurrence of any Default Event, in addition to any other rights and remedies which Label has under this Agreement or otherwise, Label may terminate the Term upon notice to Company, following any applicable cure period set out below. No exercise of any right or remedy hereunder will limit Label’s right to recover damages by reason of Company’s default, Label’s right to exercise any other right or remedy under this paragraph, or any of Label’s other rights or remedies. Notwithstanding the foregoing or anything elsewhere herein, if the Default Event arises by reason, alone, of a “change of control” pursuant to clause (vii) of Section 5(a)(2) below, Label’s sole remedy shall be termination of the Term of the Agreement by notice to Company.

    (2) “Default Event” means: (i) Company’s failure to timely make payments required hereunder or render reports or accountings as and when due or cooperate or render any information or documents required to be furnished or otherwise made available to Label as and when required hereunder; provided, however, that, with respect to any such breach which is non-repetitive, Company shall have a period of fifteen (15) business days from its receipt of Label’s notice of such breach in which to cure said breach before it shall be considered a “Default Event”; (ii) Company’s breach of any of Company’s representations, warranties, covenants or obligations hereunder, or Company’s failure to fulfill any of Company’s material obligations hereunder; provided, however, that, with respect to any such breach in respect of which a shorter cure period is not expressly provided herein, and provided that the breach concerned is non-repetitive, Company shall have a period of fifteen (15) business days from the date of Label’s notice of such breach in which to cure said breach before it shall be considered a “Default Event”; (iii) Company’s bankruptcy or insolvency, or the dissolution or the liquidation of Company’s assets, or the filing of a petition in bankruptcy or insolvency for an arrangement or reorganization by, for or against Company, or the appointment of a receiver or a trustee for all or a portion of Company’s property, or Company’s making an assignment for the benefit of creditors; provided, however, that Company shall have a period of sixty (60) consecutive days from its receipt of any involuntary petition in bankruptcy filed against Company in which to cure said breach before it shall be considered a “Default Event”;
    (i) Company’s attempt to assign any of Company’s rights under this Agreement in contravention of this Agreement without Label’s prior written consent, or the succession of any of those rights to any other person or entity by operation of law; (v) If as a result of Company’s acts or omissions any person or entity obtains access to the Label Materials in contravention of the terms, limitations and eligibility criteria regarding access thereto prescribed in the Term Sheet; (vi) If for any reason Company ceases doing business in the ordinary course and/or there is a substantial diminution in the ability of Company to effectively carry on its business in general or any aspect thereof, or in particular the business of distributing Label Materials and/or the other products referred to in this Agreement; and/or (vii) In the event of a change of control of Company, where such control passes to an entity: (aa) that is a direct competitor of Label, (bb) with whom Label is involved in a then-current litigation, (cc) that operates or supports a service facilitating infringing activity in relation to Label’s or other parties’ content and exclusive rights thereto, (dd) is failing, in a material manner, to comply with applicable laws, (ee) with whom conduct of business on the terms set out in this Agreement would raise a regulatory issue, or (ff) which Label has objectively reasonable grounds to believe lacks the resources to meet the financial obligations imposed on Company hereunder.

    (b) Upon termination or earlier expiration of the Term: (1) all rights granted to Company herein will immediately terminate, and Company will not thereafter have any right to make any use of any Label Materials or any other materials provided by Label to Company; (2) Company will immediately return, delete or destroy all materials furnished or selected by Label for use by Company, including all Label Materials and any phonorecords or copies derived therefrom in any and all forms, formats and media, as Label will direct in Label’s

    sole discretion; (3) Company will immediately remove all links to web sites or other properties owned or controlled by Label; and (4) all monies then due or to become due to Label will become immediately due and payable.

    6{d)

    {c) The following provisions shall survive the termination or expiration of the Term: 1, 2(d), 3, 4,

    6. Miscellaneous:

    (a) Except as otherwise specifically provided herein, all notices under this Agreement will be in writing and will be given by courier or other personal delivery or by registered or certified mail at the appropriate address set forth on page 1 of this Agreement or at a substitute address designated by notice by the party concerned. Each notice to Company will be addressed to the attention of Company’s CEO; provided, however that notwithstanding anything elsewhere herein, take-down notices from Label may be given via facsimile, electronic mail or any other effective method of written communication. Each notice to the Label or any of its affiliates will be addressed to the attention of such party’s Chief Business and Legal Affairs Officer, with copies of each notice sent simultaneously to Label’s Chief EU Business and Legal Affairs Officer and General Counsel. Notices will be deemed given when mailed or, if personally delivered, when so delivered, except that a notice of change of address will be effective only from the date of its receipt.

    {b) THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF NEW YORK, AND THE VALIDITY, INTERPRETATION AND LEGAL EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK(WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES UNDER NEW YORK LAW). THE NEW YORK COURTS (STATE AND FEDERAL) SHALL HAVE SOLE JURISDICTION OVER ANY CONTROVERSIES REGARDING THIS AGREEMENT. ANY ACTION OR OTHER PROCEEDING WHICH INVOLVES SUCH A CONTROVERSY SHALL BE BROUGHT IN THOSE COURTS IN NEW YORK COUNTY AND NOT ELSEWHERE. THE PARTIES WAIVE ANY AND ALL OBJECTIONS TO VENUE IN THOSE COURTS AND HEREBY SUBMIT TO THE JURISDICTION OF THOSE COURTS.

    (c) Label may assign Label’s rights under this Agreement in whole or in part to any subsidiary, affiliated or controlling corporation, to any person or entity owning or acquiring a substantial portion of the stock or assets of Label, or to any partnership or other venture in which Label participates, and such rights may be similarly assigned by any assignee. Company will not have the right to assign or sub-license this Agreement or any of Company’s rights hereunder without Label’s prior written consent, EXCEPT that Company shall have the right to assign its rights and delegate its duties under this Agreement, subject to Section 5(a)(2)(vii), to: {i) any affiliate under common control with Company; (ii) any entity that acquires control of Company or otherwise succeeds to substantially all of the assets or stock of Company and that is not an entity falling within any of the categories listed in Section 5(a)(2)(vii) above and is not engaged in Objectionable Activities, and any purported assignment by Company in violation of this subparagraph will be void.

    (d) {1) Company will at all times indemnify and hold harmless the Label and its affiliates and each of their respective officers, agents, employees, directors, and advisors (collectively, the “Label Indemnified Parties”) from and against any and all claims asserted by a third party against any of the Label Indemnified Parties for damages, liabilities, costs and expenses (including court expenses and reasonable counsel fees) arising out of (x) any breach or alleged breach by Company of any representation, warranty, covenant or agreement made by Company herein, (y) the distribution or operation of the Service, or (z) any allegation that any materials used or exploited by or on behalf of Company in connection with the Service (except for Label Materials or any other materials substantially in the form provided to Company by Label for use in connection with this Agreement and where Company’s use thereof is authorised hereunder), in whole or in part, directly or indirectly, infringe upon, misappropriate or otherwise violate the rights of any third party {the “Company Claims”}. In the event of any Company Claim: (i) the applicable Label Indemnified Party shall notify Company of the Company Claim concerned immediately following the date that such Label Indemnified Party becomes aware of it (provided that such failure to immediately notify Company shall not affect any Label Indemnified Party’s right to indemnification hereunder if such delay did not materially prejudice the defence of such claim); (ii) Company shall defend against the Company Claim concerned (at Company’s own expense) through legal counsel selected by Company; and (iii) each party shall reasonably cooperate with the other in the defence of the

    Company Claim concerned. Company shall be solely responsible for the amount of any settlement or judgment for such Company Claim and all legal expenses and counsel fees incurred by Company in connection therewith; provided, however, that any settlement acknowledging any wrongdoing on behalf of any of the Label Indemnified Parties or creating any additional obligations or payments or potential liabilities for any of the Label Indemnified Parties shall be subject to the written approval of such Label Indemnified Parties. The applicable Label Indemnified Parties shall have the right at all times to actively participate in the defence thereof, and to employ legal counsel selected by such Label Indemnified Parties at their own expense, it being understood that Company shall have the right at all times, in Company’s sole discretion, to maintain control of the conduct of the defence.

    (2) Label will at all times indemnify and hold harmless the Company and its affiliates and each of their respective officers, agents, employees, directors, and advisors (collectively, the “Company Indemnified Parties) from and against any and all claims asserted by a third party against any of the Company Indemnified Parties for damages, liabilities, costs and expenses (including court expenses and reasonable counsel fees) arising out of (x) any breach or alleged breach by Label of any representation, warranty, covenant or agreement made by Label herein, or (y) any claims that items of Label Materials (excluding any copyrighted musical compositions embodied therein in respect of which the acquisition, administration and payment for required licenses is Company’s responsibility under the Agreement, whether pursuant to Section 4{b)(vii) above or otherwise) exploited by Company in accordance with the terms, conditions and limitations prescribed elsewhere in this Agreement, infringe upon misappropriate or otherwise violate the rights of any third party {the “Label Claims”). In the event of any Label Claim: (i) the applicable Company Indemnified Party shall notify Label of the Label Claim concerned immediately following the date that such Company Indemnified Party becomes aware of it (provided that such failure to immediately notify Label shall not affect any Company Indemnified Party’s right to indemnification hereunder if such delay did not materially prejudice the defence of such claim); (ii) Label shall defend against the Label Claim concerned (at Label’s own expense) through legal counsel selected by Label; and (iii) each party shall reasonably cooperate with the other in the defence of the Label Claim concerned. Label shall be solely responsible for the amount of any settlement or judgment for such Label Claim and all legal expenses and counsel fees incurred by Label in connection therewith; provided, however, that any settlement acknowledging any wrongdoing on behalf of any of the Company Indemnified Parties or creating any additional obligations or payments or potential liabilities for any of the Company Indemnified Parties shall be subject to the written approval of such Company Indemnified Parties. The applicable Company Indemnified Parties shall have the right at all times to actively participate in the defence thereof, and to employ legal counsel selected by such Company Indemnified Parties at their own expense, it being understood that Label shall have the right at all times, in Label’s sole discretion, to maintain control of the conduct of the defence.

    (e) Except with respect to the parties’ respective indemnification obligations pursuant to Section 8(d), neither party to this Agreement shall be liable to the other under or in connection with this Agreement whether in contract, tort (including negligence), misrepresentation (other than where made fraudulently), breach of statutory duty or otherwise for any indirect, exemplary, multiple and special or consequential loss and/or damages whatsoever incurred by either party (including loss of business profits) whether or not the party was advised in advance of the possibility of any such loss. Nothing in this Agreement shall restrict or limit the liability of either party for fraud or fraudulent misrepresentation or death or personal injury caused by negligence.

    (f) No amendment to this Agreement shall be binding upon Label unless it is made by an instrument signed by an authorized officer of Label. A waiver by either party of any provision of this Agreement in any instance will not be deemed a waiver of such provision, or any other provision hereof, as to any future instance or occurrence. All remedies, rights, undertakings, and obligations contained in this Agreement will be cumulative and none of them will be in limitation of any other remedy, right, undertaking, or obligation of either party. If any part of this Agreement, or the application thereof to any party, will be adjudged by a court of competent jurisdiction to be invalid, such judgment will not affect the remainder of this Agreement, which will continue in full force and effect, or the application of this Agreement to the remaining parties.

    {g) Signatories to Label Affiliate Agreements sign in order lo grant the relevant rights owned by them in their countries of the Territory and are not liable jointly and severally or otherwise for any of Label’s or each other’s obligations under this Agreement either to Company or Company’s affiliates, assignees or licensees. Label shall be responsible for ensuring Label’s affiliates provide the Label Materials required pursuant to Paragraph 6 of the Term Sheet (solely to the extent not provided centrally by Label) and otherwise

    reasonably co-operate with Company to the extent such co-operation may be required in order to give effect to the spirit of this Agreement.

    (h) Save only in respect of the foregoing this Agreement is made solely and specifically between the Company and Label and is not intended to be for the benefit of or enforceable by any other person save in respect of permitted assignees pursuant to the terms of this Agreement.

    (i) This Agreement represents the entire agreement between Label and Company with respect to the subject matter hereof and supersedes all prior and/or contemporaneous agreements and understandings, whether written or oral, between Label and Company with respect to the subject matter hereof.

    U) For the avoidance of doubt, subject to the remainder of this subsection U), unless otherwise agreed in writing by Label, in the event of Label’s acquisition of, or merger with, any third party owning or controlling master audio and/or audio-visual recordings, such third party shall not be subject to the terms and conditions of this Agreement, and Company’s distribution of such third party’s recordings via the Services shall not be deemed authorized hereunder. In the case of Label’s acquisition of a third party, Label shall only be entitled to take advantage of this section in the event that the value of such acquisition exceeds one hundred million US dollars ($100,000,000). Where the value of any such acquisition is not publicly available information, in order to take advantage of this section Label shall be required to warrant and represent to Company that the value exceeds one hundred million US dollars ($100,000,000).

    Very truly yours, ACCEPTED AND AGREED:

    SONY MUSIC ENTERTAINMENT

    By ,2/Jeffwan<er-
    effi & Head, Bus. & Legal Affairs
    Title: Global Digital Business Sony Music Entertainment

    SPOTIFY USA INC
    By: /L-/L /l .) ;h–
    Title:

    Date: T

    u._o…..-0

    t 8' 2-0 ll
    l
    Exhibit A Term Sheet
    1. Definitions:

    "Active User" means any user who has accessed via the Ad Supported Service at least 1 (one) Royalty Bearing Play of audio content (whether or not such content embodies Label Audio Recordings).

    "Ad Supported" means a transmission of audio that: (i) is made available to members of the general public without charge of any kind, directly or indirectly (i.e. not on a subscription basis or any other business model), and (ii) in connection with such programming, the sole source of revenues is derived from Gross Revenues.

    "Ad Supported Service" means the service offering End Users within the Ad Supported Territory both on­ demand and pre-programmed access to Streams embodying Label Audio Recordings in the Approved Format, solely on an Ad Supported basis via a Static Desktop Application on an Approved Static Desktop Device. Such service shall always be offered in accordance with the Functionality Specifications.

    "Ad Supported Userbase" means the aggregate number of Active Users of the Ad Supported Service (or any variant thereof) in any given country in the Territory in the immediately preceding thirty (30) days.

    "Advertisements" means any and all audio, audiovisual, graphic, textual and other advertisements, messages, sponsorships or other commercial space, however delivered via any web pages, application or other electronic properties, as the case may be, that is leased, licensed or sold to or on behalf of Persons for purposes of advertising, promotion, marketing, trade or otherwise (e.g., the development, maintenance or enhancement of general goodwill), excluding advertisements, messages, sponsorships or other commercial space related solely to the promotion or marketing of recorded music owned or controlled by providers of recorded music for use in connection with the Service.

    "Aggregate I nformation" means, at a minimum, information concerning the usage habits, patterns and/or demographic classification of an End User as a group but which does not specify the identity of any individual End User. Aggregate Information shall include, by way of example, information regarding an End User's use of recordings on the applicable Service and, where available, an End User's postal code.

    "Annualized" means the amount of advance or minimum revenue guaranteed to any party divided by the number of twelve (12) month periods comprised in the period during which such advance or minimum revenue guarantee is recoupable pursuant to the agreement between Company and such party, By way of example, if Company has guaranteed to Label the sum of $40m, which is recoupable during a period of 42 months, the annualized amount shall be calculated as $40m divided by (42/12), equaling $11.43m.

    "Approved Device" means an electronic device approved by Label in writing in advance in each instance, for use in connection with Label Materials delivered via the applicable Service. As of the Effective Date, the following devices shall be deemed so approved by Label as "Approved Devices" for purposes hereof:

    (i) Devices such as laptop, ultraportable and desktop personal computers, that (a) are primarily intended for use in a fixed location, (b) connect directly or indirectly to Company Servers and, optionally, to other peers running an Authorised Application, (c) take delivery of Label Materials solely by means of Streaming or download to an Authorised Application, {d) manage access to the applicable Service, and (e) comply with the terms, conditions and limitations prescribed in this Agreement, including the applicable Functionality Specifications attached hereto as Exhibit C and the Technical and Security Specifications attached hereto as Exhibit D (each, an "Approved Static Desktop Device").

    (ii) Mobile devices such as cellphones, mp3 players and hardware devices embedded into automobiles that {a) connect directly or indirectly to Company Servers and, optionally, to

    ————————- · -··

    other peers running an Authorised Application, (b) take delivery of Label Materials solely by means of Streaming or download to an Authorised Application, (c) manage access to the applicable Service, and (d) comply with the terms, conditions and limitations prescribed in this Agreement, including the applicable Functionality Specifications attached hereto as Exhibit C and the Technical and Security Specifications attached hereto as Exhibit D (each, an "Approved Mobile Device").

    (iii) networked media streamers (e.g. Sonos), set-top boxes and games consoles that (a) are primarily intended for use in a fixed location, (b) connect directly or indirectly to Company Servers and, optionally, to other peers running an Authorised Application, (c) take delivery of Label Materials solely by means of Streaming or download to an Authorised Application, (d) manage access to the applicable Service, and (e) comply with the terms, conditions and limitations prescribed in this Agreement, including the applicable Functionality Specifications attached hereto as Exhibit C and the Technical and Security Specifications attached hereto as Exhibit D (each, an "Approved Static Home Entertainment Device")

    "Approved Format" means the following:

    (i) In respect of Streams of Label Audio Recordings delivered to End Users as part of the Ad Supported Service: OGG Vorbis, AAC, MP3 AND WMA at a maximum bitrate of 160kbps

    (ii) In respect of Streams of Label Audio Recordings delivered to End Users as part of the Subscription Service: OGG Vorbis, AAC, MP3 and WMA at a maximum bitrate of 320kbps

    (iii) In respect of Streams of Label Video Recordings delivered to End Users as part of the Subscription Service: MPEG-4 Part 10 (H.264), MPEG-2, or Ogg Theora, in all cases at resolutions no higher than 720 x 576.

    (v) In respect of Cached Downloads of Label Audio Recordings delivered to End Users as part of the Subscription Service: OGG Vorbis, AAC, MP3 and WMA at a maximum bitrate of 320kbps,

    Company shall be entitled to request Label's approval of other formats/bitrates from time to time during the Term.

    "Authorised Application" means one of the following versions of the software application created, owned and controlled by Company and carrying the Company Branding which are designed to provide access to the Services for End Users via Approved Devices and are used in the selection of materials (including Label Materials), the reception of such materials (from nodes including Company Servers and other End Users' active, network-connected instances of the application), the rendering of such materials (which process may include decryption, caching and playback of digital data embodying sound and video recordings), and which conforms to the Technical and Security Specifications:

    (i) "Static Desktop Application", being a version of the software application designed for access by desktop and laptop computers (including but not restricted to computers using Microsoft, Apple and Linux operating systems), solely via fixed line Internet or Wi­ Fi connections or via mobile data-card interfaces. It is agreed that. solely in respect of End Users with a valid and subsisting Premium Subscription, such versions of the application may support Cached Downloads in addition to Streams;

    (ii) "Static Home Entertainment Application", being a version of the software application designed for access by home entertainment devices such as networked media streamers (e.g. Sonos) and TV set-top boxes connected to third party IPTV, cable or satellite networks, but excluding those devices covered by sub-section (i) above. It is

    10

    agreed that, solely in respect of End Users with a valid and subsisting Premium Subscription, such versions of the application may support Cached Downloads in addition to Streams; or

    (iii) "Mobile Application", being a version of the software application designed for access by portable and/or mobile devices such as cellphones, mp3 players and hardware devices embedded into automobiles via an over-the-air cellular network data connection, but also permitting access via Wi-Fi or a Bluetooth-enabled personal area network. It is . agreed that such versions of the application may support Cached Downloads in addition to Streams.

    "Cached Downloads" means encrypted digital files embodying audio or audio-visual recordings that are downloaded and securely stored on an Approved Device utilizing an appropriate technical solution approved by Label, for the purposes of caching particular recordings for offline playback, provided always that the Approved Device may only render the files for playback in the event that the Approved Device remains authorized as a result of the End User having a valid, subsisting Premium Subscription, subject to any Grace Period provided for in the Functionality Specifications, and provided further that Local Files shall not be within the scope of this definition.

    "Company Branding" means the "Spotify" Trademark and any other indicia of branding owned by Company and generally used by Company in conjunction with the applicable Service together with the "Spotify" Trademark. Unless otherwise agreed by Label, such indicia of branding shall not include those owned by parties who, at the date of signature of this Agreement, are third parties (other than affiliates of Company).

    "Content File" means each applicable item of Label Materials delivered to Company in accordance with the applicable Content and Delivery Specifications.

    "Content Preparation and Delivery Specifications" means the content preparation and delivery specifications for Label Materials mutually agreed by the parties hereto, which at the Effective Date shall be those attached as Exhibit K. Label may change such specifications from time-to-time in its sole discretion.

    "Conversion Goal" means the attainment of each of the following: (i) the number of Qualifying Subscribers, expressed as a percentage of the Ad Supported Userbase, at expiry of the immediately preceding calendar month, is equal to or greater than ten percent (10%), and (ii) the number of Organically Derived Subscribers, expressed as a percentage of the Ad Supported Userbase at expiry of the immediately preceding calendar month, is equal to or greater than five percent (5%).

    "Distribution Method" means the authorised method for distribution of Label Materials via each of the Services, in accordance with Paragraph 9(c) below.

    "Effective Date" means the earlier of (i) the date that any of the Services are first made commercially available in the Territory; and (ii) April 1, 2011. Company shall notify Label in writing of the date on which any of the Services first become commercially available to End Users registered as being in any part of the Territory.

    "End User" means, at any particular time, a natural person who has registered for one of the Services – including for the avoidance of doubt any person who has registered for a Free Trial (as defined in Paragraph 10(c) below) and remains in good standing pursuant to the Service's terms of service and privacy policy.

    "Functionality Specifications" means the functionality specifications, operational features and mock-ups of the applicable Service, insofar as it includes the Label Materials, attached hereto as Exhibit C.

    "Gross Revenues" means, with respect to audio and video streams, all gross revenues directly related to the Services, including but not restricted to (i) all revenues attributable to text and/or graphic display, rich media and "in-stream" advertising revenues (i.e., audio, visual or audiovisual advertisements exhibited before, during or after a stream containing any Label Materials) generated from software client interfaces, widgets or properties through which the Services are made available; {ii) all revenues attributable to CPC-, CPM- and CPA-based advertising, e-commerce and "referral fees"/bounties (including non-refundable advances and guarantees,

    however characterized) generated via the Services, whether structured as a one-time payment or as a recurring revenue share, but specifically excluding e-commerce, "referral fees"/bounties and like revenue generated from sales of permanent audio and video downloads; (iii) all sponsorships sold by Company or its agents; (iv) solely with respect to the Subscription Services, all subscription income; and (v) any share of traffic or tariff charges for delivery of the Services that Company may be able to secure from telecommunications partners, and (vi) all revenues derived from the sale of data related to End Users and their use of the Services, in each case less (aa) VAT and or other sales tax (where relevant); (bb) actual out-of-pocket costs paid to unaffiliated third parties for ad sales commissions (subject to a maximum overall deducoff4Ae top" of such advertising revenues); (cc) revenues derived from the sale of Credited Inventory pursuant to Paragraph 14(e) (to the extent such revenues would otherwise be included within this definition).

    For the avoidance of doubt, revenues derived from sales of devices and equipment–(wMffler-or t intended for use in connection with the Services) that are not e-commerce sales made through the Services, revenues derived from Company's performing development activities in connection with such devices and equipment, revenue from brand licensing and other intellectual property licensing and any other source of revenue of Company that is derived from a source outside the operation of the Services per se, shall not be considered "directly related to the Services" for purposes of the definition of "Gross Revenues". For purposes of determining "gross revenue" hereunder, any non-cash consideration shall be accounted for on the basis of the fair market value of the property or services concerned. As between Company and Label, Company shall be solely responsible for the amount of any and all unpaid or uncollected gross monies that would otherwise constitute "gross revenue" hereunder if actually paid (i.e., Company shall be solely responsible for all so-called "bad debt").

    "Indirectly Acquired Subscri bers" means End Users acquired via Company's acquisition, merger or consolidation of a third party service, or the stock or assets of a third party service, including the userbase, as the case may be, in whole or in part, directly or indirectly.

    "Internet" means the publicly accessible worldwide system of computer networks that transmits data by means of packet switching based on a global network infrastructure with the following attributes: (i) it is logically linked together by an address system based on the Internet Protocol (IP); and (ii) it effectuates data transmissions by means of Transmission Control Protocol/Internet Protocol (TCP/IP).

    "IODA" means Label's affiliate, the Independent Online Distribution Alliance, Inc

    "IODA Fees" means any portion of the Label Fees due under this Agreement which is attributable to the exploitation of IODA Materials via the Services. Such portion shall be calculated in respect of each accounting period (i) in the case of the Ad Supported Service, based on the IODA Share of the amount due to Label under Paragraph 1O(a)(1), and (ii} in the case of the Subscription Services, based on the IODA Share of each of the amounts due to Label under Paragraphs 10(a)(2) and 10(a)(3).

    "IODA Materials" means any and all Label Audio Recordings and Label Video Recordings, from IODA member labels together with associated metadata, delivered directly to Company via a separate content feed managed by IODA independently of the content feed managed by Label. Any content delivered via such content feed that is not owned or controlled by IODA member labels shall not be considered IODA Materials, providing that all content from labels in respect of which releases have been delivered via such content feed prior to the date of execution of this Agreement shall always be considered IODA Materials.

    "!ODA Share" means, with respect to any particular calculation, a fraction where the numerator is the number of Royalty Bearing Plays of IODA Materials on the relevant Service or Services in the accounting period concerned, and the denominator is the aggregate number of Royalty Bearing Plays of all Label Materials (including IODA Materials) on the relevant Service or Services in the accounting period concerned.

    "IODA Switchover Date" means the date of expiry of the distribution agreement entered into by Spotify Limited and IODA on July 1, 2009.

    "Label Artist" means a recording artist whose musical performances are embodied in Label Audio Recordings or Label Video Recordings.

    "Label Authorized Artworkn means the cover art, as used by Label in connection with the Label Audio Recordings or Label Video Recordings as originally distributed by Label in the Territory for sale through normal retail channels (as that term is understood in the phonograph record industry), that is delivered to Company for use in connection with the applicable Service.

    "Label Authorized Trademarks" means any Trademark owned and/or controlled by Label and made available to Company pursuant to the terms and conditions of this Agreement.

    "Label's Usage Percentage" means a fraction, the numerator of which is the aggregate number of Royalty Bearing Plays of Label Materials, and the denominator of which is the aggregate number of Royalty Bearing Plays of all materials distributed by Company under authorization from applicable rights-owners, including Label Materials, via the Service, excluding for the avoidance of doubt, stream deliveries or playbacks of Local Files or permanent downloads purchased from the Service. Company shall use a uniform methodology across all content providers for determining the numerator and denominator of this fraction, including but not restricted to the manner of counting Streams and playbacks. Company agrees in good faith to use reasonable efforts to procure that other content providers agree to include plays of Local Files or permanent download purchased from the Service within equivalent calculation. This fraction shall be calculated separately for the Ad Supported Service and each of the Subscription Services.

    "Local Files" means permanent downloads of digital audio or audio-visual material that a user has stored locally for playback on an Approved Device. Local Files may include sound recordings owned and I or controlled by Label.

    "Organically Derived Subscribers" means any Qualifying Subscribers who (i) are not Indirectly Acquired Subscribers or Third Party Acquired Subscribers; (ii) have entered into an end user licence agreement directly with Company governing the terms of a non-bundled subscription to a Subscription Service {excluding Online Day Passes) in the Territory carrying exclusively Company Branding; (iii) maintain a billing relationship directly
    with Company; and (iv) remain in good standing pursuant to Company's terms of service. For the avoidance of doubt, End Users who have purchased access to a Subscription Service (excluding Online Day Passes) via a third party retailer or hardware manufacturer that sells such access on a stand-alone (i.e. non-bundled) "a la
    carte" basis, (via gift cards, redeemable codes or otherwise) in the normal course of its business, shall be considered organically derived. Additionally, the involvement of a third party payment service provider in facilitating the billing of particular End Users shall not in itself prevent such End Users from being considered organically derived.

    "Permitted Services" means a service offering on-demand streaming that (i) is owned or controlled ("controlled meaning the ownership of 50% or more of the securities in the company operating such service or the ultimate parent entity thereof) by Label, under any brand or co-brand, and/or (ii) offers only limited duration promotional clips (as opposed to recordings in their entirety); and/or (iii) offers Ad Supported on-demand streaming in connection with limited term, non-recurring, niche-based offerings (e.g. offerings limited by genre or including a materially reduced number of tracks as compared to the total digital catalogues of its licensors); or
    (iv) does not offer playlisting functionality and can reasonably and objectively be viewed as ancillary to the service operator's primary business model of selling permanent downloads.

    "Person" means any natural person, legal entity, or other organized group of persons or entities. (All pronouns, whether personal or impersonal, which refer to Persons include natural persons and other Persons).

    Preview Clips" means Streams of thirty (30) second audio-only clips derived from Label Audio Recordings (as defined in paragraph 6(a) below), in such form and formats as are delivered to Company pursuant to the Content Preparation and Delivery Specification, provided always that {i) not more than one (1) Preview Clip derived from any one (1) individual Label Audio Recording shall be made available for Streaming;
    (ii) each Preview Clip shall be Streamed to End Users only in the form delivered by Label to Company for such purpose, without any editing or alteration; and (iii) each Preview Clip is made available in close proximity to a prominent offer (e.g., a so-called "buy now" button or link) to purchase a digital download and/or that
    corresponds to the applicable Preview Clip from Company or any legitimate third party distributor authorised by Label.

    "Prohibited Entity" means (A) an entity (or the parent, subsidiary or affiliate of any such entity) against which Label, any affiliate or any licensee of Label has a claim arising out of the unauthorized recording, manufacture, distribution, sale, reproduction (or other use) of any Label Materials or other related property or other related tangible or intangible rights, (B) an entity (or the parent, subsidiary or affiliate of any such entity) involved in litigation with Label or any of its affiliates or licensees arising out of the unauthorized recording, manufacture, distribution, sale, reproduction (or other use) of any Label Materials or other related property or other related tangible or intangible rights, (C) an entity (or the parent, subsidiary or affiliate of any such entity) engaged in any unauthorized recording, manufacture, distribution, sale or other activity in violation of Label's or its affiliate's or licensee's rights, or (D) any "major label" competitor of Label in the Territory.

    "Publishing Costs" means all monies payable to Persons (or to third parties authorised as agents acting on such Persons' behalf) that own or control rights in or to musical compositions (e.g., music publishers or applicable rights societies with appropriate jurisdicti on) in connection with exercising Publishing Rights. For the avoidance of doubt, Company shall be solely responsible for administering and paying all Publishing Costs.

    "Publishing Rights" means all rights, consents, licenses and permissions necessary for the following acts undertaken after Company's receipt of the applicable Content File from Label: (i) the reproduction, communication to the public, public performance, digital audio transmission and generally making available in connection with the applicable Service of musical compositions embodied in Label Materials, and (li) the communication to the public of musical compositions embodied in any Advertisements placed on the Service by Label on its own behalf or on behalf of any third party. For the avoidance of doubt: (a) Label shall not be responsible for any license required for the reproduction, inclusion or synchronization of any musical compositions embodied in any Advertisements placed on the Service; and (b) as between Label and Company, Company shall be solely responsible for acquiring, administering, and maintaining all Publishing Rights provided always that (c) for any Advertisements placed on the Service by Label on its own behalf or on behalf of any third party, Label shall be responsible for licensing any reproduction, inclusion or synchronization of any musical compositions embodied in any Advertisements.

    "Qualifying Subscribers" means the aggregate number of End Users of the Online Subscription and Premium Subscription only in the relevant country of the Territory at the relevant measurement point, but not including any Indirectly Acquired Subscribers. For purposes of this definition, the term "End Users" shall not include persons engaged in a Free Trial.

    "Royalty Bearing Play" means any Stream or playback of a Cached Download of an item of audio or audio-visual content (excluding Streams or playbacks of Local Files, advertising and permanent audio downloads purchased from the Service) via the relevant Service (or part thereof) with a minimum duration of thirty (30) seconds.

    "Services" means the Ad Supported Service and the Subscription Services that are produced, programmed, managed and operated (as applicable in each case) solely by Company, are marketed exclusively under the Company Branding, are available in the Territory and which conform to the Technical and Security Specifications.

    "Similar Authorised Services" shall mean all on-demand digital audio streaming or paid-for permanent digital audio download services authorised by Label or Label Affiliates (excluding any services licensed under a statutory licensing scheme) within the relevant part of the Territory.

    "Stream" (as a noun) means each instance in which any portion of a recording is delivered by means of digital audio transmission which digital transmission is substantially contemporaneous with the performance of the recording embodied therein and delivered in an approved format that is designed so that such recording cannot be digitally copied, duplicated or stored in a renderable form in any manner or medium in whole or in part, directly or indirectly (other than any temporary copies used solely for so-called "caching" or "buffering")."Streaming" shall be construed accordingly.

    "Subscriber Goal" means one million (1,000,000) or more Qualifying Subscribers at expiry of the immediately preceding calendar month, of which at least five hundred thousand (500,000) shall be Organically Derived Subscribers.

    ii————————·····—

    "Subscription Service" means one of the following services, each offering End Users within the Subscription Territory unlimited on-demand and advertising-free access to Streams embodying Label Audio Recordings and Label Video Recordings in the relevant Approved Format and in accordance with the Functionality Specifications:

    (i) "Online Subscription", meaning a subscription providing access via a Static Desktop Application and/or Static Home Entertainment Application, in return for a periodic subscription fee;

    (ii) "Premium Subscription", meaning a subscription providing access, including access to Cached Downloads, via a Static Desktop Application, Static Home Entertainment Application and/or Mobile Application, in return for a periodic subscription fee; and

    (iii) "Online Day Pass", meaning limited time access solely via the Static Desktop Application or Static Home Entertainment Application, commencing upon purchase of such access and ending twenty-four (24) hours afterwards, in return for a one-off (non­ periodic) retail fee.

    For the avoidance of doubt, the relevant subscription fee payable by End Users may be billed by Company or an Authorised Distributor, and such fee may be charged in respect of access to the service on a stand-alone basis or access as bundled with the products and services of such Authorised Distributor. Subscriptions may also be sold whereby an End User pays for multiple subscription periods (for example, 12 months) up-front.

    "Third Party Acquired Sub

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  11. Musicservices4less

    2. Term:

    (a) The “Term” shall begin on the Effective Date, and, unless earlier terminated in accordance with the terms herein, shall subsist during the following consecutive periods of time:

    “Contract Period 1”: meaning the period of twelve (12) months following the Effective Date; “Contract Period 2” : meaning the period of twelve (12) months following Contract Period 1.

    Label shall be entitled at its sole discretion, upon written notice to Company (to be served no later than (1) month prior to expiry of Contract Period 2), to extend the term for an additional twelve (12) months (such additional period, “Contract Period 3”).

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