Cats, pigeons, cans, worms and stick-poked hornet’s nests, scattered all over the place. That’s the best way to describe yesterday’s publication by tech site The Verge of the full 42-page licensing contract between Sony Music and Spotify, signed in 2011 before the streaming service launched in the US.
Its publication comes at a sensitive time for both companies, from the debate around artists’ streaming payouts to Spotify’s next batch of licensing renewals.
The details are already being picked over: $25m of advances from Spotify to Sony Music over the first two years of the deal; a Most Favoured Nation clause to amend the contract if another label gets a better deal than Sony – including increasing those advance payments if necessary; $9m of free advertising inventory on Spotify that Sony is free to sell on if it chooses; Spotify’s retention of 15% of ad revenues sold by third parties; and details on how the label makes money under different systems of revenue share and per-stream / per-subscriber minimums.
The Verge’s angle on the contract is questioning how Spotify’s payments make their way through to Sony’s artists: “It’s worth asking who really should shoulder the blame for the lackluster streaming payments that artists like Swift have been complaining about — the labels or the streaming service?”
Artists’ rights blog The Trichordist has challenged part of that interpretation, suggesting that the “relatively low” advances listed in the contract “doesn’t reek of the contrived breakage where the label gets an advance that is clearly going to result in a grotesque overpayment” – which thus will not be passed on to artists.
In fact, it suggests Spotify has more to lose from the publication of the contract. “Now that we know that Spotify was making deals with major labels with significant advances and all kinds of goodies thrown in presumably to justify a lower royalty rate, how did Spotify stand there with a straight face and ask independent artists to take an even lower royalty with no goodies?” Spotify’s contract with indie licensing agency Merlin remains un-leaked.
Who leaked the Sony contract? We’re placing our bets on The Verge rooting it out from the recent Wikileaks dump of hacked Sony emails, rather than a leak from either company. Sony and Spotify both declined to comment about the leak when contacted by Music Ally.
The timing is particularly concerning for Sony which – as Billboard reported yesterday – remains in a legal fight with 19 Recordings over the way it paid streaming royalties to artists including Kelly Clarkson and Carrie Underwood. Sony prevailed in the last ruling, but this week 19 has asked for permission to appeal.
However the bigger headaches for Sony and its rivals are likely to come outside the courts: managers will be poring over the leaked contract and using it to ask UMG and WMG – not just Sony – more questions about the black-box streaming calculations in between Spotify and their artists.
A painful process, but perhaps a necessary and ultimately healthy one for the industry as a whole.