If Spotify crashed tomorrow and couldn’t deliver a single song, they’d still own more than $1 million in guaranteed payments to three major recording labels, according to financial data just published. Welcome to the murky — and extremely expensive — world of major label advances.
On-demand streaming services Spotify, Apple Music, Tidal, Deezer, Rhapsody, and others collectively paid nearly $1.6 million in guaranteed payments a day to just three major recording labels last quarter. Total ‘minimum guarantees’ topped $144 million over the 91 day period, a figure that likely doesn’t include preferred advertising inventory and other juicy perks.
That is on top of royalties for actual plays, which more than quintupled that figure.
Who says tech has all the power?
Benefiting from the guaranteed payments are Universal Music Group, Sony Music Entertainment, and Warner Music Group, a trio now wielding massive power over the fate of companies like Spotify. Massive royalty burdens are a major reason why Spotify has been unable to initiate a public offering, or IPO, on Wall Street, while smaller players like Rhapsody and Deezer have long struggled to gain economic stability.
The data on advance payments comes from industry analyst Mark Mulligan of Midia Research, who pored through company reports, filings, and other data to triangulate the figures. Over the course of three months during second quarter of this year, guaranteed payments topped the impressive $144 million threshold, according to the figures. On a total of 91 days, that breaks down to a heavyweight $1.55 million daily in fixed, non-negotiable obligations.
Overall royalty payments to the three major label groups topped $918 million during the period, bring the overall per diem to $10.1 million. That may be seriously crowding growth for the streaming sector, with Spotify paying out 82% of its revenues for royalties. “Spotify states rights payments are 70% of its revenue though its 2015 accounts show royalty payments as 82% of revenue due in large part to advanced payments,” Mulligan noted.
“Using this benchmark advanced payments represent around 16% of all label payments.”
Stepping back, the transition towards streaming is looking pretty good for the majors. During the second quarter, streaming revenues topped $921 million, up 33.1 percent, with download revenue shrinking to $705 million, or 23.2 percent. That produced a net quarterly gain of $91 million, or a reasonable 6% year-over-year jump.
Of course, an emphasis on streaming is having a downward impact on paid downloads, with double-digit declines in 2016. The downward spiral has forced Apple to actively consider phasing out all music downloads in the near-term, something the company denies despite aggressive moves in that direction in countries like South Korea.
The damage they do to music business is worth at least $20M a day!
Even then it would be only $7.3 billion contribution to almost dead industry.
YouTube, as a have it all jukebox, to humanity should pay $50M a day for annual total of just $18.25 billion.
If such a dream would actually happen we would be at $25B or 43% of inflation adjusted 1999!
UMG, SONY and WARNER have to be smoked out of streaming and advertising GRAVE! Total NERDOWIMPOSSIS keeps them in comfort with hopes that $200B of Apple’s cash will deliver some secret and unknown yet salvation! WOW! (Read optimistic statements from Doug Morris, the King of Sony Music)
http://www.cultofmac.com/325248/apple-musics-recipe-for-a-streaming-hit-cash-cards-and-marketing-muscle/
Naive predictions of brilliant streaming future from Sony Music boardroom
Peanuts. You’re talking about less than $600M a year. And these numbers for Spotify are all over the map.
And how did we ever get to a point of justifying a business based on THEIR cost of doing business? You’re seriously going to argue your suppliers down because you can’t afford their product?
Absolute lunacy. And people are buying it. We should all live our lives with the rest of the world bending to our needs. And they have the balls to insist artists support a business model that is destroying the artists ability to survive?
The industry talks about a “value gap” any industry that allows their primary product to be given away for five years has done permanent damage to any hope of ever having a viable business.
Mulligan’s analysis reveals why publishers are desperate for Direct Licensing: they too want some of that Non-returnable – No need to share with writers – Minimum Guarantee cash. That Minimum Guarantee cash equates to an additional 12% of Spotify’s revenue. If it was redirected to songs, it could boost the song rate from 15% to 27%. But the labels got to the table first. With 82% of Spotify’s revenue going to content costs, there’s nothing left in the money pot to pay those pining publishers anyway.
And how does that $1.55mm a day advance end up being distributed by the major labels? Who’s getting the revenue from the advances – artists, producers? Are they paying out over over a 12-month period based on Spotify’s reporting on “per music stream” activity per song and track? Or does it just end up in their pockets? And, of course, that’s only the recording side of the pie. What kind of advances are the songwriters and publishers getting, if any? Obviously, once again anyone outside the major label circle, gets the short end of the streaming stick.
Completely bogus article based on misinformation. Spotify alone has 40m subscribers. Even if the average monthly retail price per subscriber is, say, $7 (due to various discounts and promotion), if they pay labels 58% of income that’s $162m per month in royalties, and growing. At this point, why would the labels need advances?
Tidal hasn’t paid royalties to indies since January 2016 why isn’t this reported??
I wanna know that too! I have some very unrealistic reports from Tidal, saying 0-8 streams per month, even tho the material has 2 mio streams on all other platforms… stealing our money Jay Z??? why aint no one doing something to stop Jay Z from this?