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Spotify reportedly offering artists direct licensing deals with cash advances

By | Published on Thursday 7 June 2018


Spotify has approached some artist managers about licensing music directly from certain acts rather than via a label or distributor, according to sources who have spoken to Billboard. Those sources say that the streaming firm has offered advances of up to a few hundred thousand dollars as part of the proposed direct licensing arrangements.

The direct licences would mean that Spotify would pay royalties directly to said artists, paying a revenue share rate a few percent lower than would be the norm under a label or distributor agreement – so 50% rather than something closer to 55%. Any song royalties also due would continue to be paid via Spotify’s deals with the music publishers and collecting societies.

There has been much discussion, of course, about streaming firms becoming record labels and/or music publishers, directly signing artists and songwriters, mainly in a bid to reduce their significant royalty commitments to the labels, publishers and collecting societies. There are all kinds of reasons why Spotify or Apple Music becoming labels or publishers wouldn’t work, as discussed on this week’s edition of Setlist.

The direct licensing deal being touted by Spotify isn’t the streaming firm becoming a label, although it is an interesting new approach that would ultimately reduce the company’s royalty bill. Under the deal artists would be self-releasing their records – and would own all the recording rights – but would then license the recordings to Spotify at a reduced rate in return for the cash flow the service would be providing.

From an artist perspective, the lower royalty rate would probably actually be higher than what they are currently receiving, because there would be no label or distributor taking their cut. The artist could then license their recordings to all the other streaming services and elsewhere through a distributor on a very good deal, because they would no longer be seeking an advance from said distributor to help with recording and marketing costs.

For more proactive managers, Spotify’s proposal would be attractive, in that it would provide upfront cash allowing the artist to self-release and then buy in marketing and label services as required. It’s not clear whether Spotify would also throw in some marketing kickbacks as part of the deal. Nor what level of artist the service would offer this kind of deal to – probably acts where it is pretty certain any advance money would be recouped through royalties within a few years.

Billboard’s sources say that Spotify is keen to stress that under this proposed arrangement the artist would not be ‘signed’ to the service, presumably because of concerns that its label relationships will be damaged – and potential label agreements breached – if it is seen to be trying to become a full-on record company in itself.