$51.5 Million Reasons Why Spotify Isn’t Paying Artists…

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Curious to see what a contract between Spotify and a major label looks like? We’re all pretty curious, as these deals have been extremely secretive.

Until now…

The Verge has gotten ahold of Spotify’s contract with Sony Music, signed in 2011. The contract was good for two years and included an optional third year.

So what’s in this contract? For starters, Sony’s agreement included a Most Favored Nation Clause that guaranteed that other labels wouldn’t get a better deal. Sony was able to bring an independent auditor in every year to make sure of this. If another label received more money per market share then Spotify would owe Sony the difference.

Spotify also paid Sony up to $42.5 million in advances. Was this money split fairly with artists? Highly unlikely.

Sony also agreed to a minimum of $0.00225 per stream.

Furthermore, Sony was given $9 million in ad space that they could keep or resell for profit. $15 million in discounted ads were also available for Sony to purchase.

The contract says Spotify gets to keep up to 15 percent of ad revenue handled by hired third parties. The Verge says that Spotify has never publicly mentioned this 15 percent in their public revenue explanations.

See the whole contract here.


Nina Ulloa covers breaking news, tech, and more: @nine_u

54 Responses

  1. Me2

    Interesting to see this. Many of these deals are under nondisclosure.

  2. Me2

    Pretty sure Sony wouldn’t need to pay any of the upfront money if it was structured as an advance. Wonder what the per p!ay rate would have been without it?

    • jw

      This is interesting. Spotify had something like 13b plays in the first year (mid 2011-mid 2012). So if Sony received $25m for that year, & if my math is correct, their take is $.002 per play. Per market share, the total dent would probably be in the neighborhood of $.006 per play (the 4 major labels at the time accounted for roughly 3/4 of all sales). Apparently the payout for indie artists in 2011 was ~$0.0045. So their payout would’ve conceivably been more like $.01 per play.

      Someone might wanna check my math.

      • jw

        I was way off. This is incorrect in that the recouped portion of the $25m shouldn’t factor into the indie payout.

        So if Spotify recouped $15m of the $25m through plays (there’s no way to tell how much they recouped, as far as I can tell, unless something new leaks), then their impact would be $10m/13b, which is ~$0.0008 per play. If Spotify recouped 60% from the other major labels, the impact per play would be ~$.0024 per play, which is still half of the reported $0.0045 reported 2011 indie payout rate, but nowhere near my previous calculation. However, this is all complete speculation based on a 60% recoupment rate, which has no basis in any evidence. Clearly, the lower the recoupment rate, the bigger impact the advances have on indie artist payouts, & vice versa.

        Up until now, I thought Spotify’s upfront payouts to labels were unrecoupable licensing fees, not connected to activity. This leak actually makes me think that the labels are LESS leaches than I thought they were.

    • B3

      Not correct. Labels share the ‘breakage’ of unrecouped advances with artists according to the activity that generated recoupment. In other words, if Spotify recouped $10m of a $15m advance, artists would be paid based on the activity of the $10m, and Sony would share the additional $5m according to that activity with artists. This is standard.

      • Me2

        Yes there is that, but this doesn’t strike me as a “breakage” paradigm, and i’m kinda glad about that. How do you “break” an internet stream anyways? Did the wi-fi go out? I should stop talking.

      • An Indie

        You’re incorrect. The major labels don’t share these “deal fees” (aka advances) except with the rare few who have the clout to dig in and demand it (in a meaningful way). That goes for indie labels distributed by the majors (either by UMG or Sony directly or through the major label owned “indie” distributors – Caroline, RED, The Orchard). The portions that are shared that you’re speaking about would be the performance based revenues earned against their guaranteed minimums but even there you’re too generous to the majors. If a major gets a $15 million quarterly minimum guarantee (which, remember, is on TOP of their “deal fee” or “advance”) and performances of their repertoire earn $10 million, the $10m is paid out (on a royalty basis – depending upon the artist contract anywhere from 12% to 50% of revenue AFTER recoupable expenses) and the $5 million balance is considered “direct to profit” revenues.

        Don’t think this is true? Google the Fair Digital Deals Declaration that about 900 indie labels & distributors across the globe signed over a year ago. It’s all about highlighting how unfairly digital revenues are paid out.

        • Paul Resnikoff

          The major labels don’t share these “deal fees” (aka advances) except with the rare few who have the clout to dig in and demand it (in a meaningful way).

          Correct. Or at least, that’s what the lawyers on the inside tell me.

    • Anonymous

      Sure, but I don’t read Verge. And this is extremely important information.

      I can’t imagine why any artist would stay on Spotify after this.

      • Davey

        I don’t think you understand. These Labels are really screwing over these artists. The labels are taking most of the money that spotify dishes out. The Labels only give a fraction of that money to it’s artists. These Label’s only have to upload the audio files to Spotify. Frankly Label’s don’t deserve any of the money considering how much work artists put into their songs, and the amount of work it takes Label’s to upload a file to Spotify’s servers.

        • Anonymous

          You may have missed this part:

          “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.”

        • Me2

          The labels are screwind the indies and unsigned too by sticking them with a low rate and nothing up front.

  3. Anonymous

    “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.”


    • Anonymous

      In other words, Spotify and YouTube take the same cut — 45%.

      Compare to iTunes…

  4. Dave

    You’re all struggling with the concept of commission here.

    The 15% of gross revenue is simply to allow for a commission to the 3rd party sales house.

    Spotify doesnt keep it.

    In reality, sales houses normally take more than 15%- but 15% is the extent to which the labels will discount their fees to make room for an ad sales house in the monetisation of a free service.

  5. JTVDigital

    Thanks to this, people may start to realize where the streaming “problem” really is.
    Major record labels have been literally extorting digital music services (was it download or streaming services) in exchange of a license for exploiting their catalogues.
    Most music services are dead before even thinking of making any profit because of that.
    And needless to say that signed artists will never ever see a dime of these upfront payments which were made at some point (and are still happening from time to time when majors decide to bleed music platforms dry a bit more).
    A business where neither retailers (digital platforms) nor workforce (signed recording artists) can make any profit margin, simply doesn’t work.

    • Anonymous

      “Thanks to this, people may start to realize where the streaming “problem” really is.”

      We already got it, dude: The problem is that billion dollar corporations like Spotify don’t pay artists.

      Nobody cares why they don’t pay. If they can’t make money they just have to go away.

      • Anon

        Actually they do pay artists if they are locked into a contract with a label. If the artist signs a contract with a music label than the payment is made to the label and whatever deal they made dictates what the artist is paid. Spotify distributes the music and provides a platform for people to listen and discover music. I know it’s hip to hate a big companies but you are focusing on the wrong entity in this relationship.

        • Anonymous

          “Actually they do pay artists”

          No, they actually don’t. They are useful if you’ve got a Warner-sized catalogue, but they’re worthless to artists.

          And I don’t hate big companies, btw. I love the biggest of them all…

  6. Anon

    I’d say most of these comments, like Paul and Nina’s blog disguised as “reporting” are grossly misinformed. JTVDig nails it. The deals the artists sign with the labels are the problem and the dinosaurs keeping the new model from moving forward. You can hardly blame the labels for clinging to their ridiculous arrangement but to blame the streaming service is misguided. Most streaming services can’t speak out about the deals for fear of retaliation but the pendulum is swinging and more people are realizing that the labels aren’t necessary. You will see artists signing directly with Apple Music, Spotify and Tidal in the near future and this is the labels’ worst nightmare. In the meantime they will continue to do everything in their power to disrupt streaming enough to slow the inevitable (publicly) and obfuscate the truth. All the while lining their pockets with royalties from these streaming services that are replacing them. The labels love all of you self-appointed music industry experts who attack the streaming models because it distract you from the real problem, them.

    • JTVDigital

      Yes, sure, we don’t understand the business of music while you obviously do.

      This is not about “approval” from major labels, this is about licensing their catalogue in exchange of insane upfront fees that come on top of the royalties payments they’ll receive afterwards once the catalogue is online.

      Indeed, major labels still have the money for now and still attract naive newcomers (who’ll later on cry like babies prentending they’ve been ripped off by their record labels – just because they don’t know how to read a contract, basically).
      The one and only reason for major labels to still exist is money, you’re right about it. It gives them the appropriate leverage for significant marketing investments, lobbying, etc.

      But hey things are changing, slowly but surely, physical records are disappearing, streaming is replacing download, music consumption habits are evolving, there are more and more distributors and artist services companies who can offer exactly the same things as a major label would traditionally do, but yes still with the exception of upfront marketing investment.
      This is going to change as well, there are investment companies starting to appear with a focus on music.
      Within a few years, it is very likely that major labels become completely irrelevant, even for big acts who may find the appropriate level of support via various specialized partner companies, brands, etc.

    • DavidB

      So you think the labels aren’t necessary because streaming services will pay artists directly the advances they need to pay recording studios, engineers, session musicians, and then to make professional videos, etc – oh yes, and some money to live on in the meantime? Or perhaps you are one of those people who think records and videos are made and paid for just by pressing a button on your computer?

      • JTVDigital

        This is not exactly what was said.
        Recording costs have drastically decreased and will keep on decreasing as technology evolves. You don’t need an expensive recording studio or engineers or session musicians, etc nowadays to record a song.
        Most mainstream commercial releases are produced without a single musician (yes it’s sad, but that’s the way it is).
        What you need is mainly time and talent + various simultaneous skills and/or surround yourself with a good team who will invest (not necessarily financially) in your project. It does NOT need to be a record label anymore.
        Professional music videos cost no more than a few thousand $ to produce (even major labels don’t quite put a lot of money on the table for producing videos, unless you’re talking about top 10 superstars).
        Also major labels mostly sign licenses nowadays (rather than recording contracts) meaning they do not spend a dime in the music production side of things (this is up to the artist and/or indie label to cover all the spendings, then cross fingers to sign a license with a major).
        There is no money for artist development anymore in major labels, it’s all about short term and fast ROI.

        • DavidB

          “Recording costs have drastically decreased and will keep on decreasing as technology evolves. You don’t need an expensive recording studio or engineers or session musicians, etc nowadays to record a song.”

          So you are one of those people who think you just press a button – more or less!

          I’m aware that some genres of ‘music’ can be recorded without much in the way of equipment or professional skills, but that is very, very limiting. Good music still costs money to record. To take an example with relatively restrained production, the debut album by London Grammar has credits for three different recording studios, separate mixing and mastering studios, various ‘additional programming’ credits, string arrangements recorded in Prague, and about ten credited producers and engineers. The costs must at least run into tens of thousands, but it is money well spent for a quality product. How it is financed is another matter. Maybe you can find expert mixing and mastering engineers, or a string orchestra, who are willing to wait a couple of years to get paid. Good luck with that!

          • JTVDigital

            “So you are one of those people who think you just press a button – more or less!”

            Not at all. Just saying that except from “A-list” artists most people can’t spend that much on recording, and to an extent this is absolutely not where most of the (potential) budget shall be spent.
            Most bands/artists are more than capable of recording on a budget and produce a very professional-sounding result, with some mid-range equipement.
            There are thousands of artists who have recording facilities at home (and in a lot of cases it goes much further than a simple “home studio” in terms of equipment and quality).
            Recording strings in Prague or in Bombay does not cost a lot, and there are many bands and labels we know who are doing this (even big indie labels).
            There are great mastering engineers everywhere who don’t charge that much for a qualitative work.
            There is not a 1:1 relationship between quality and recording/production costs.

            If you think that you need a record label just to cover your 10k$ of recording costs then that’s a very poor added-value they’ll bring, compared to all the compromises that will be required.
            Any band with a decent fanbase can (quite) easily raise these type of amounts via a crowdfunding campaign, for example, then focus on marketing/promo, getting booked for shows, have some merchandising ready, etc.

    • Anon

      “And those labels that have the money will ALWAYS attract and sign those artists who want the money.”

      Unless they can get the money somewhere else. The idea that getting a big signing bonus is a good thing is silly. All of that money is recouped against sales. It is a loan against future earnings and it locks the artist into a contract, usually not a great one. It is the distribution which is the power of the engine. If you play My Horrible Garage Band enough on PopHits 107, Pandora, or Spotify, eventually people get to know it and “like” it. It is how the labels made these pop stars. The best music is not the most popular music. The most popular music has the best distribution. Streaming music is distribution. If the streaming companies begin signing artists there is no reason for the labels. How many bands out there make money from “record sales”? Bands make money with their live shows unless they are the 1% who have the distribution backing of a major label and then they are splitting the money. The major labels see that the gig is up and they have to change or they will be out of business. Sure they will exist to create the next New Direction or Britney but most music will be streamed….

      • JTVDigital

        Exactly. Major labels have become nothing but banks. Advances are loans that artists may spend a lifetime to recoup.

    • Ryan

      If you watched that Wall Street Journal Tidal interview video that was released recently, the interviewer asked Vania Schlogel if Tidal was going to become a record label, and she admitted that their contracts with the majors won’t permit them to. As long as streaming wants to use the enormous catalogs owned by the majors, we’re not going to see them directly signing artists.

  7. Elderberry

    Major labels are secretly screwing recording artists in digital deals? Who would have thought that? There is only one way for digital distribution to ever pay creators anything meaningful. There has to be a universal boycott by creators in solidarity to proclaim they will not offer their music to the public for pocket change. As long as the creators agree to devalue their music to nearly nothing, the digital swindlers will gladly keep abusing the creators. The Internet has convinced the world original music has virtually no monetary value.

    • Zac Shaw

      Yeah, boycott the most popular way to hear music for the most lucrative demographic, that will work.

      This Verge story copied + pasted by DMN just goes to show that all the commenters here moaning about digital music streaming platforms should focus their ire on the labels where it belongs. It takes two to tango and the labels are leading the dance.

      Artists need to boycott the major labels and support copyright reform to remove the corruption lobbied for by the media conglomerates that own the labels, and thus control roughly 2/3rds of the world’s music. They are nothing without catalog.

      The point of having copyright law is to ensure creativity flourishes, tell me how do Marvin Gaye’s heirs receiving damages because modern-day hitmakers were inspired by their dead relative further creativity? Tell me how record label exploitation and corruption is making music flourish?

      What’s making music flourish is that everyone can make it now. The people who give a shit about the music industry are dying off by the day. Musicians are making it for themselves as entrepreneurs, and reaping all the risk and reward. There will always be a bunch of greedy lawyers and schemers trying to exploit great music, but if we change musician culture and reform copyright, they will have far less leverage to fuck up our culture for profit than they have now.

      • There is something...

        Thank you. At least some people here still get it.

        Also, the title is, again, misleading. It’s not Spotify’s job to pay artists. They pay the labels / aggregators. Those are the ones who have to pay the artists.

        Did Tower Records or HMV pay the artists ? No, they paid the labels / distributors. Nobody was blaming Tower Records when an artist was screwed out of its royalties by his label so why blame Spotify or Beats or any other streaming service ?

        • Me2

          I get this argument. But it leaves out how indies and unsigned get stuck with a low rate, even if they have no major label affiliation. Why should they get the bum deal?

          • Me2

            I get that it’s massive pressure from the catalog holders (majors, indie conglomerates).

            But it takes two to tango. Spotify also agreed to this deal, and by doing so is also responsible for the market effects.

            And label equity in the streaming services also gets an honorable mention. Boycotting the majors completely also means pulling from Spotify.

      • steve

        as a fellow artist, have to say that we have contributed our fair share to this problem by signing contracts which give the labels complete ownership of our music…if they didn’t own such a vast catologue of music, they’d have less leverage to ink deals for the huge advances they are with people like spotify…(and you can bet that they will fight to the death to keep most of these revenues instead passing some of it on to the artists…that’s they’re m.o…)…

  8. Anonymous

    This has been what A2IM (and Merlin) have been saying for years about the majors’ grabbing approach to digital licensing and how that approach disadvantages indie labels, artists AND the ability for the streaming economy to develop.

    It happened in front of our eyes last year with the whole YouTube licensing soap opera. The majors grabbed bushels of upfront, non-performance related income and in turn created the first fully licensed, on-demand FREE tier for mobile (and now are crying about free, for fuck’s sake!!!).

    And bet your ass they’re doing everything they can to get similar advantages and non-accountable, non-sharable revenue from Apple for the Apple Music streaming service. Think Apple won’t play ball? Bullshit! Read page 558 & 559 (paying particular attention to item #29) of this document – http://www.loc.gov/crb/proceedings/14-CRB-0001-WR/rebuttals/SX%20Public/SoundExchange.pdf. This is public testimony (redacted) from the on going Copyright Royalty Board (“CRB”) hearings for the new web radio (Pandora) master/performer statutory rate stating the effect of the majors’ iTunes Radio licenses as compared to what Pandora should pay but it includes a comparison of terms that the majors received for their Apple license that indies didn’t get (btw, very likely referring to the indie iTunes Radio deal that Digital Music News published back in 2013).

    With this Sony Spotify license now printed for all to see, the public CRB testimony identifying that the majors got considerations that the indies didn’t (despite protestations to the contrary from Apple who has always loved to position themselves as being even and fair to all labels and artists) and the Fair Digital Deals Declaration that over 900 indie labels signed outlining how artists & indies are being screwed by the majors’ digital licensing strategies, it is plain to see what the game is and, surprise surprise, it’s the same as the old game. The majors aren’t to be trusted and if you sign a deal to be distributed by a major or you sign an artist contract with one you get what you deserve.

    • Me2

      I was thinking the same thing. That YouTube Music Key fiasco last year was very revealing.


    The subject matter of this article is fucking Atrocious.

    Spotify / Vevo / Etc. is a joke and always has been in terms of how they conduct themselves as “industry leaders.” There are no “cash advances” wherein someone like Kurt Cobain / Axl Rose / Slash gets “100-ish million dollars” from SONY / any/or other major record label as a signing business and then (literally) dies and punk-rockers like Courtney Love get to literally drive their personal estates into the ground because they’re raging drug addicts who smokes crack and do heroin and then go to lavish rehab facilities every few years. (Sorry, Courtney, it’s true).

    Digital distribution by nature is a total clusterfuck of organization and personal management. (And we luckily have supreme court decisions and shit that protect the ACTUAL INDUSTRY because people are afraid to talk to lawyers/doctors and have MEDICAL PRIVACY these days).

    You can’t BOYCOTT that. I’m saying this as someone who grew up listening to ridiculous advice from all sorts of people since I knew how to properly read sales contracts, hence why my personal media distribution is still 100% privately owned… (by ME).

    …So yeah, call this a “personal rant” against how much I despise the realities of modern digital distribution…


  10. Anon

    As an someone in the know, I can say that the deal structure between Sony and Spotify is not unique. As far as advances, streaming revenue has to be booked against streaming activity. If the advances are in excess of the royalties generated from streaming for a given period, Sony still has to book this revenue against streaming activity. In this case, Sony would use historical streaming activity in order to match revenue against products. Artists will ultimately be paid based on this historical data, assuming they had streams play during the historical period. This advance money won’t magically disappear with respect to artist royalties.

    Having said that, if Sony had an equity stake in Spotify and Spotify was sold or went public, the Sony would have no obligation to pass any of this revenue to artists.

    • Anonymous

      Anon, if you were speaking about an advance against activity you’d be correct but keep in mind that the Sony deal being leaked here is old (it expired and the renewal is also soon to expire). The current structure for major labels’ digital licensing strategies is to refer to advance payments with language that removes them from being tied to performances (eg. “deal fees”, “revenue guarantees”, etc.). The majors consider these dollars as direct to profit revenue and do NOT share them with artists or distributed labels.

  11. Anon2

    Anon, Sony does have an equity stake and even Stevie Wonder can see that Spotify will go public very soon.

    Any artist that supports Spotify like Ed Sheeran is obviously getting a backhander of this upfront adrev money as a sweetener.

    And people like Bono and Quincy Jones who support Spotify – well, they would do, they have equity in it.

  12. The Chocolate Chips (@ChocChipsMusic)

    Streaming is great. If people get used to paying for streaming services (I’m a Spotify premium user myself at $10/month) then I really think there will be plenty of money in the system … the low per play rate that big label artists are getting is a big label problem more than a streaming problem (as this article makes clear.) big labels have always been ripping people off. … wouldn’t it be great to cut the middle man out? maybe that’s the end game …

  13. Kevin

    One part of the entire debate that is constantly overlooked is the real monopoly and power the Major labels had. Distribution. The majors controlled it.
    Record retailers and a small mail order system were the only place and method available to purchase recorded music and those who controlled the physical mass manufacturing, printing and distribution controlled the entire industry.
    The only alternative an indie artist and all label had was to use the mailing system and that was expensive.
    The majors desperately wanted to retain distribution control and thus control over actual sales so they have used every trick to convince both artists and authorities that their fight was all to do with royalties.
    Their fight has nothing to do with royalties, It has been, right from the start, a fight to retain control of the industry which in turn gives them total control over artists.
    We have seen it time after time. Don’t rock the boat or your music will simply vanish from the record shop shelves.
    Computing and the Internet changed that making it easy for artists to create and distribute their music without relying on the distributor. All of a sudden one could record their own music and distribute it in electronic form. Low distribution costs, no more printing, no more plastic CDs, cases and covers and as the Internet gets faster the better for the one who have discovered that he majors are no longer a necessity.

    • Troglite

      Well stated. I couldn’t agree more. The majors are using their catalogs as leverage to retain control over the new digital distributors. They’re also using fear and financial leverage to keep artists within their control.

      I actually think Tidal is close to the mark, but so far, they’re missing one of the most important dynamics of this new marketplace. Instead of making Tidal the brand, they should focus on enabling artists to private label their own streaming and digital sales (direct to consumer).

      The artists are the brand. Fans aren’t loyal to any intermediary no matter how much venture capital they spend on advertising. As soon as a better option exists, they’ll jump ship. Artists on the othe hand have the ability to sustain their audiences attention over time and different mediums. Tidal could add addition value as a platform by creating stand alone discovery, playlist, curation, radio, and social services.

      I have extensive experience running a profitable global cloud hosting business that is well outside of the entertainment industry. This type of service can be built. Aspiro is already white labeling their streaming platform, they’re just not pushing it down to the artist level.

  14. Steve Timmins

    If you feel Spotify is ripping you off, just get your music deactivated. So your music cannot be streamed at Spotify anymore. Makes more sense than lining their pockets.