Amidst Legal Battles in 3 Continents, Spotify Enters Into High-Stakes Talks with Each Major Label

Spotify remains entrenched in legal battles across three continents.  Will this ultimately hurt the company’s negotiating position?

Nearly a year after its IPO, Spotify has reportedly entered into licensing agreement talks with the Big 3 – Universal Music Group, Sony Music Entertainment, and Warner Music Group.

According to sources familiar with the situations, the negotiations remain in “very early stages.”  The high-stakes talks will reportedly impact the company’s profit margins for years to come, with labels exercising important control of critical catalogs.  These talks typically go on for several months, or even longer at times.

Instead of reaching new deals, the streaming music giant and each major label could merely extend their current agreements.

The negotiations come at a critical time for Spotify amidst strong criticism from the music industry.

In a split decision last month, the Copyright Royalty Board (CRB) ruled in favor of a 44% royalty increase for songwriters on streaming music services.  This reportedly marks the first time in 110 years that songwriters have received an increase.

Spotify wasn’t too happy with the ruling and chose to dispute the increase.  Alongside filings from Pandora, Amazon, and Google/Alphabet, the streaming music giant filed a separate notice with the U.S. District Court of Appeals.

That move has drawn the ire of top music executives — including Irving Azoff — as well as the National Music Publishers’ Association (NMPA), songwriter Justin Tranter, music lawyers such as Dina LaPolt, and major publishers, including Warner/Chappell.

Warner/Chappell, in turn, is owned by Warner Music Group.  Other mega-publishers, including Universal Music Publishing Group (UMPG), are similar sub-divisions of major label conglomerates.

In a separate antitrust battle with Apple, the Cupertino company slammed Spotify’s decision to essentially ‘sue’ songwriters.

Spotify sued music creators after a decision by the US Copyright Royalty Board required Spotify to increase its royalty payments.

This isn’t just wrong, it represents a real, meaningful, and damaging step backwards for the music industry.

Spotify formally lodged an antitrust complaint with the European Union over anti-competitive App Store tactics.

Prior to the antitrust filing, the streaming music giant had finally launched in India.  To do so, however, Spotify ‘inappropriately’ claimed a statutory license to use Warner/Chappell’s repertoire without its authorization.  The company awaits the outcome of its legal battle in India, though Warner failed to prevent the launch via legal injunction.

The dispute quick drew the ire of publishers worldwide.  As first reported on Digital Music News, the International Confederation of Music Publishers (ICMP), which represents hundreds of publishers around the world, has fully backed Warner/Chappell in its dispute with the streaming music giant.

These fights could ultimately impact who comes out on top in the major label negotiations.  With paid streaming revenue now outpacing physical and download revenues in major markets, the delicate balance of power if shifting.  After all, who needs who more?  Both undoubtedly need the other to win, though Spotify definitely isn’t the only game in town.

Downplaying the company’s current battles with the music industry, Spotify CEO Daniel Ek told the Financial Times,

Are there issues from time to time about compensation, as there are between every supplier and retailer?  Of course.

The music industry went through a phase where it was almost in a decade-long decline . . . if you look at the relationship now from when we started . . . the relationship is a lot better.

Previously, Spotify negotiated its licensing deals as it geared up to launch its IPO.  Reducing royalty payouts, major labels had reportedly agreed to help the company make its case on Wall Street.  From 2016 to 2017, Spotify’s annual gross margin jumped from 16% to 22%.  In its previous financial quarter, that number jumped to 26.7%.

Since that point, the company’s position may have changed.

Midia Research’s Mark Mulligan explained,

Years ago, Spotify was stuck in this narrative that it was Spotify against the artists.  They managed to move the dialogue away from that, partly because of effective PR and partly because artists were getting bigger checks.

This all has turned back the clock.”

As the company waits for the outcome of its legal battles across three conditions — North America, Europe, and Asia — Daniel Ek has merely labeled these overlapping issues as a “coincidence.”

This isn’t a case that we decided 48 hours ago that we wanted to do.  I wish it went that fast.