Image taken from: http://www.ostreet.co.uk/project/spotify/
Part of my experience in the music industry in Mexico City consisted in compiling information and analyze commercial terms in order to give music licenses to streaming platforms and digital stores, on the publishing side.
I used to work in EMMACSACM, the world's first digital music hub and the only one-stop-shop in Mexico entitled to license music catalogs. Having access to a lot of information allowed me to come up with crazy theories and ideas about what the future of music could be.
Spotify, Deezer, Apple Music, VEVO, Radio, Sony Music Unlimited and many other services entered the Mexican market around 2012 - 2014, exactly during my time in EMMACSACM, and I remember having conversations about how streaming companies might, at some point, start offering deals to bands and skip the labels in order to save money, however; for contractual reasons, we also always thought it would be difficult to accomplish. Well, a few years later, that seems to be the case:
According to Billboard, Spotify has offered advances to a number of managers and indie acts in exchange for licensing their music directly to the streaming service:
"Under the terms of some of the deals, management firms can receive several hundred thousand dollars as an advance fee for agreeing to license a certain number of tracks by their independent acts directly to Spotify. Then, in at least some cases, the managers and acts stand to earn 50 percent of the revenue per stream on those songs on Spotify. That’s slightly less than the 54 percent of revenue the major record labels in the U.S. get per stream, on average, according to Billboard’s calculations, but major-label artists and their managers typically receive only 20 percent to 50 percent of the label’s share, depending on an act’s individual royalty rates, and don’t usually get to own their master recordings."
The question now is: Is spotify becoming a record label?
Spotify, might be acting as a label in the form that it is looking to get artists and temporarily exploit their music. They are offering advances to artists and managers, doing marketing and promotion for them. However; the core difference lies in that Spotify is not buying copyrights, but only licensing them. Another thing to consider is that deals being offered by Spotify are non-exclusive. Spotify is allowing artists to license the same music to other platforms under separate agreements, and letting them retain full revenue from any such outside deals.
Spotify’s current licensing agreements with the major record labels explicitly prevent the streaming company from competing in a substantial or meaningful way with labels’ main businesses. Spotify isn’t supposed to buy catalog or musical recordings. This is why Spotify is also being very very careful. They are advising artists not to say that they are "signed" to the service.
Right now, all we can do is pay attention to see how things develop. Spotify might look to renegotiate deals with the major labels in the future and change the terms, so that the streaming company can sign some names, although that certainly will not be welcomed by the major labels.
Are we about to witness another shift in the music industry?
Original source: Billboard, "Spotify Offers Managers, Artists Advances to License Music Directly to Its Streaming Service: Exclusive", by Hannah Karp, 2018.