Spotify is offering advances to a select number of managers and indie artists in exchange for licensing their music directly to their streaming service. According to Billboard, management firms are able to receive a couple hundred thousand dollars from Spotify as an advance fee for agreeing to license a specified number of tracks from their indie acts directly to the streaming platform. Managers and artists stand to make 50 percent of the revenue per stream, which is a bit less than the average revenue per stream earned by major record labels in the U.S. at 54 percent. This makes it more attractive for independent artists to stay independent because major labels typically send 20 to 50 percent of what they make from streaming services back to the artist and managers.
Plus, on a major label deal, the copyright to the master recording is normally transferred to the major label. This is what separates Spotify from competing as a major label because they are not purchasing those rights.
With the Spotify deal, indie acts are able to license their music to other platforms under separate agreements, allowing the artist and management to retain 100 percent of outside revenue. Major labels typically have the artist share a percentage of the total gross revenue generated across all services. Spotify is also advancing a significantly less amount that major label deals, which are normally above $1 million.
The purpose of this move is to save money and benefit indie artists. With individualized deals, Spotify is able to save on revenue to the artist more than they would to a major record label. They didn’t make a profit last year, so the massive steaming giant is looking towards profit.
Spotify’s current licensing deal with major labels does not allow them to compete in a substantial or meaningful way with labels’ main businesses. This loose wording allows the streaming service to test those waters with smaller, indie acts; however, going after a superstar would be a different story.
Direct deals aren’t new for digital distributors. SiriusXM and Apple Music have dipped into the direct licensing pool as well. These deals essentially allow for digital distributors to pay for play at a lower rate, where some can speculate indies who license their music through Spotify will get better playlist placement. A spokesperson at Spotify has mentioned the user experience comes first, so this is not the case.