The exact details may not (yet) be public, but Spotify’s recent licensing deal with Universal Music Group is widely expected to include a lower royalty rate, in order to make the streaming service’s growth more sustainable.
In the run-up to that deal, there has been some discussion within the industry about whether any such change to Spotify’s licensing terms would spark a domino effect of rival services asking for similar discounts.
Cue Bloomberg’s report yesterday: “Pandora Media Inc., the embattled music streaming company, has asked major record labels for money or better deal terms to help reverse losses and reduce pressure from impatient shareholders… In addition to asking for direct investments from the labels, Pandora has sought to renegotiate licensing deals to reduce its costs.” Although note, the report also claimed that labels “are unlikely to accede to the requests”.
Whatever the specific details of this negotiation, it’s more interesting to zoom out and consider the bigger picture. The question of what is a sustainable royalty-rate for a pureplay streaming service is one of the most important industry debates of 2017.
What is the licensing structure that will keep Spotify, Pandora and rivals not just afloat, but in rude health as they continue to compete against deep-pocketed Apple, Google and Amazon in years to come?
The difference, though, is that Spotify is negotiating from a position of strength with 50 million paying subscribers, while Pandora is negotiating more from a position of potential – its hopes that it can convert a decent number of its free listeners into paid on-demand subscriptions, as well as rolling out globally.
The near-constant speculation in recent months about whether Pandora is up for sale, and whether the most obvious suitor Liberty Media is interested or not, is not an ideal climate for bargaining either.
That bigger picture, though… There’s a growing view that a healthy scenario for music rightsholders is a streaming market with at least five big, global streaming players, including at least two pureplays.
Apple, Google, Amazon and Spotify look to have four of those slots locked up. Pandora isn’t a shoe-in for the fifth spot – Deezer’s backing from Access Industries and Tidal’s from Sprint stirred up some interesting possibilities – but there is nevertheless some incentive for rightsholders to give Pandora the runway to see if its subscription and expansion plans can lift off.
Let the haggling commence. Or, rather, continue. And don’t forget that this isn’t just about labels: any discount on the royalties paid by these services for recordings will play out against a backdrop of publishers agitating increasingly for a greater share of streaming revenues for their songwriters.