Why Do A Direct Deal With Spotify? Here’s What We Learned… – High End Radio

Why Do A Direct Deal With Spotify? Here’s What We Learned…

So… what’s the deal?

Why might an independent artist choose to strike a direct distribution agreement with Spotify rather than another company in the music biz?

We now know a little more about Spotify’s offering.

The skinny: Spotify’s Kene Anoliefo – Senior Product Lead, Creator Marketplace – has confirmed to MBW that the company is paying 50% of (pro-rated) net revenue generated by directly-distributed artists to the performer/recorded music rights-holder concerned.

That, we believe, matches the same revenue split offered by Spotify in its much-discussed direct licensing agreements with artists (although obviously, unlike those deals, no advance checks are being paid upfront).

We’ve also checked in with US label sources, and confirmed that – based on the new major label licensing agreements signed last year – Universal, Sony and Warner receive a slightly higher percentage than this 50%.

The majors, we’ve confirmed, now receive 52% of the pro-rated net revenue their artists generate on Spotify.

The same 52% deal, we’ve learned, was also agreed between Spotify and Merlin, which negotiated on behalf of many of the world’s leading independent labels and distributors.

(Publishing revenue is paid by Spotify outside of these figures, to pubcos and collection societies. This ultimately comes out of Spotify’s remainder of net revenue after it’s paid out to labels and/or artists.)

Let’s consider three scenarios:

  1. An independent act putting out music via a basic, no-frills deal with a major-owned distributor – which sees a 15% commission taken out of their Spotify money;
  2. A superstar artist who has negotiated a 50/50 royalty split with a major label, or an artist signed to an independent label on a similar agreement; and
  3. An emerging artist who has signed a ‘traditional’ deal with a major (fast becoming obsolete, it must be said) where approximately 80% of revenue is maintained by the label and 20% is paid out in royalties.

Let’s assume for simplicity’s sake that Spotify has calculated that, in one month, an artist in each case has, on a pro rata basis, generated $10,000 in net revenue on its service.

With a direct Spotify deal, where 50% of net revenue is paid out, the artist obviously ends up with half of the $10k (ie. $5,000).

With a 15/85 no-frills distribution deal, here’s what happens: 52% ($5,200) of the $10,000 net revenue ends up with the distributor. (You’ll notice that figure is higher than the $5,000 Spotify would pay to an artist direct.)

Then, the distributor keeps 15% of this $5,200 ($780), leaving a net payout to the artist of $4,420 – smaller than the $5,000 they would have got from Spotify direct.