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Emerging markets may be the real story in Spotify direct deals


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Spotify going public was always going to create a new source of tensions (and headlines) around the company’s strategy, just on the simple fact that some of the moves that would delight Wall Street and thus have a positive effect on the company’s share price would also ruffle the feathers of its key rightsholder partners. And, indeed, vice versa. This month’s reports about the company signing direct licensing deals with some (as-yet unnamed) artists is the first prominent example.

The markets liked it, as a potential way for Spotify to shave a few more slivers off its royalty costs, but the non-exclusive non-ownership agreements are already sparking tensions with some major-label executives, who are (in traditional fashion) briefing media outlets on their unhappiness.

“The majors are so vexed by Spotify’s move, they’re considering something of a nuclear option: blocking new territorial licenses so that Daniel Ek’s service won’t be able to see through its plans to launch in India and beyond this summer,” reported MBW on Friday. “While the big record companies can’t afford not to license their music to the world’s biggest paid streaming service, they have other levers they can pull to influence Spotify’s behaviour: the streaming company still needs the major labels’ permission in order to launch in new markets, for instance,” added Billboard. A clear message is being sent.

It’s a curious situation, not least because for now, the kind of direct deals Spotify is signing seem more of a short-term threat to independent labels and distributors rather than the majors – less about poaching Drake and more about exploring the economics of directly licensing artists who are still closer to their start at the bottom, you could say. That said, any major would be foolish not to be thinking about how this initial exploration might develop, just as – and this is important – Spotify would be foolish not to be exploring it.

Mature conversations about the future dynamics of the industry – Spotify and labels’ place within them included – should prevail over pure sabre-rattling. Emerging markets do make for a fascinating pressure point however. India is one example of a market where the growth of homegrown services may have reduced any feeling on the part of labels that they ‘need’ Spotify to enter the market, even if it’s too early in Africa to say the same.

But here’s the thing: in both of those markets, for different reasons – the dominance of film-music and companies like T-Series in India plus historic issues around compensation for artists, and the fragmented, non-major-dominated ecosystem for recordings in Africa – Spotify’s direct licensing deals with artists could be much, MUCH more disruptive than in the west.

Artists’ appetite for independence in these territories and the question of whether Spotify can support it might just be the biggest, lesser-reported angle to this whole story, in the longer term at least. And perhaps that *is* something for major labels to feel a trifle tense about…

Stuart Dredge

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