More on this later, but The Verge leaked the 2011 license between Spotify and Sony Music. Considering the source, we have to assume that the Verge intended to make Sony look bad, but here’s the reality: The total advances for 3 years that Spotify committed to pay to Sony was $42.5 million. Given Sony’s huge market share and strong artist roster, this isn’t exactly chump change, but it’s pretty low. Reasonable, in fact.
Given all the braying that’s come from Spotify about how many millions they have paid to the “music industry”, we have to imagine that these advances actually recouped. Here’s a hot tip for the Verge–an “advance” is a prepayment of royalties. The fact that you got an advance on your catalog doesn’t excuse the label getting the advance from paying royalties on streams or sales.
The label may “keep” the advance, but they turn around and pay it out as they get royalty statements from Spotify. An advance only becomes “breakage” (i.e., an overpayment) if the advance is greater than the sales at the end of the contract, not at the beginning. Given the relatively low advances in the Sony deal, it doesn’t reek of the contrived breakage where the label gets an advance that is clearly going to result in a grotesque overpayment. (We think all the goodies should be shared, but what you would want shared in this case is the overpayment at the end of the contract term, not the total advance paid at the beginning of the term before it’s reduced by royalty payments.)
Granted there were some other goodies thrown in like discounted advertising inventory available to Sony, but in a sourceless article (very Googlely) the Verge has no evidence that Sony ever used any of that inventory. Or if they did, whether they “sold” it to a third party rather than advertising their own records. Since Sony’s not in the advertising business–unlike Spotify–it seems unlikely that Sony would be selling that inventory to a third party. The Verge really needs to come up with some better facts–probably from the same person who was in a position to leak the Sony contract.
We would imagine that thanks to the Verge, Sony artists are hoping that their label isn’t quite so generous to Spotify in their renegotiation.
But here’s the other thing. Now that we know that Spotify was making deals with major labels with significant advances and all kinds of goodies thrown in presumably to justify a lower royalty rate, how did Spotify stand there with a straight face and ask independent artists to take an even lower royalty with no goodies? Why should we get the hillbilly deal?
Who are these people?