Spotify talks direct artist deals: ‘Licensing content doesn’t make us a label’


Spotify CEO Daniel Ek has taken pains to reassure labels that the company’s direct-licensing deals with independent artists should not be seen as a threat to labels, tying it back to Spotify’s ‘two-sided marketplace’ strategy.

“As a platform, we’ve always licensed music from rightsholders both large and small, and we will continue to license music from whoever owns the rights,” said Ek in today’s financial earnings call with analysts, following the publication of Spotify’s Q2 financials.

“The long-term success metrics for this platform is growing the number of creators on our platform… using our promotion, marketing and career-management tools, and the number of artists and labels paying us to use those tools and services.”

He continued: “Licensing content doesn’t make us a label, nor do we have any interest in being a label… We want to grow the number of labels and creators on the platform, as well as the number of creators using our tools and services. In some cases we license from labels, and in others from artists if they own the rights to their own music.”

Ek was asked about the recent reports that major labels were delaying Spotify’s launch in India – by dragging their heels on the licensing process – out of pique at the direct licensing arrangements with artists.

“The goal of the marketplace is to create tools for all types of artists and labels. If you just look at a label today and how labels are investing, one of the largest costs for them is to figure out how to effectively market and promote an artist,” said Ek.

“The key objective we’re pursuing is taking the data and insights that we’re generating on our platform, and creating tools that enable labels and artists to better market themselves in the marketplace.”

“I think this is a huge opportunity for all labels to become more effective. And if they become more effective, that will allow them to sign even more talent, and invest even more… and further growing our mission as a company, to allow one million creators to be able to live off their art.”

Ek denied (or perhaps more accurately, carefully sounded like he was denying it while not actually denying it) that Spotify’s India launch is being held hostage by rightsholders angry at his company’s direct deals with artists.

“I think the truth of the matter is: when you deal with licensing in our case, not just [with] one company but local publishers, local record companies, global record companies, global publishers, it is always a complicated manoeuvre,” he said.

“As much as I would like to be able to say we can accurately estimate to the day when we’re going to launch in a market, there’s always local considerations… Delays when it comes to licensing for various reasons is just commonplace in this industry, and nothing related to our overall strategy.”

During the call, Spotify’s chief financial officer Barry McCarthy also said that the music-streaming service is not currently planning to raise its monthly subscription price beyond tests in individual countries.

The company has been testing a 10% price increase in Norway since earlier this year, but in the company’s earnings call with analysts this afternoon following its latest quarterly financials, McCarthy stressed its experimental nature.

“You should not expect to see price increases from us across markets. We’re playing a market-share game, we’re not playing a margin game. There may be opportunities for us in individual markets to test price elasticity like we’re doing in Norway, but don’t expect a shift in strategy,” he said.

“Specifically with respect to Norway, we saw a brief slowdown in growth and a few weeks later growth was right back to its historic level, with no change in churn. So it appears to have been well received.”

McCarthy also slapped down a recent report suggesting that Spotify has seen its US ‘churn’ (the number of users leaving its service) increase in recent times, as a result of competition from Apple Music and other services.

“Churn in the quarter was down year over year,” he told analysts. “I want to talk specifically about the US, since I’ve seen a couple of news articles reporting an increase in churn as the result of Apple competition. It, in fact, is not what happened. we also have seen improvement in the US.”

Ek also addressed the topic of competition. “Our global subscriber growth continues to be incredibly strong… In the US in particular we’re also performing well and growing rapidly,” said Spotify’s CEO.

“A good metric is to look at the total amount of Spotify users we have. We are now at 2x the size of our nearest competitor in regards to that… The streaming market is still very much in the early stages, and we are the largest global streaming platform, and we expect our lead to continue going forward.”

Other notes of interest from the call: McCarthy hinting at more acquisitions to come from Spotify. “The biggest single investment opportunity in front of us is to acquire technology that helps us to achieve faster the strategic objectives for the business,” he said.

Ek hinted at bundle deals – like Spotify’s joint subscription with Hulu – becoming a bigger part of the company’s strategy. “We’re very encouraged by the early results on both launches, both the Hulu student plan and now the Hulu standalone plan,” he said.

“This is a huge part of what we’re doing, which is trying to find ways to bring more value to our members on the subscriber base. We don’t have anything to announce [on new partnerships] but you should look at it as part of our strategy.”

Ek fielded a question about whether Spotify’s recent hiring of veteran TV executive Dawn Ostroff as its chief content officer signifies big plans for original video content. “The easy answer on that one is no. Our primary focus as we’ve said many many times over is audio and music, and that remains our focus today,” he said.

Podcasts? That’s another story. “We’re very encouraged with the growth of podcasts. It’s growing really, really fast but obviously from a very small base today… In the long term it’s unclear how big that opportunity is,” he said.

“I think everyone in the industry is trying to figure that out. It’s going to be a signifiant portion of what we do going forward.”

That includes more original podcasts. “In music, we don’t believe in exclusivity. In podcasts, we do see that the marketplace works differently, and there is room for exclusivity and for original content production to seed the marketplace,” said Ek.

“This is probably something you should expect to see us test and experiment with. We have a very young audience, and typically there aren’t that many podcasts available for them, certainly when you look at the global space. Hence we’re very encouraged about seeding that and helping develop that.”

Written by: Stuart Dredge