Spotify wants to move to Netflix model

[gdpr]

This article appeared in the belgian (internet) press today.

(google translate)

 

 

Spotify wants to move to Netflix model; that can have major consequences for the music industry

JUNE 16, 2018

Dominique Dewitte

Dominique Dewitte

editor express

The Swedish streaming music platform Spotify has started directly approaching artists to buy the rights to their music. These are lesser known singers who are not under contract with the 3 major music labels Universal, Sony and Warner Music, nor with Merlin, a music company that represents a number of smaller labels.

The music industry is 'not amused' because Spotify has committed itself in its agreements with the aforementioned labels 'not to buy music from artists, nor in any way to compete with the major music labels'.

In a first time, Spotify chooses the 'soft way'. This means that to date less than 10 little known and independent artists have signed a non-exclusive contract with the Swedish company and have received advances of around EUR 13,000.

 

Great consequences for the music industry

But although it concerns free insignificant contracts and artists, the démarche can have major consequences for the music industry.

 

Spotify traditionally acts as an intermediary, whereby music that is owned by the major music labels is licensed and offered to the consumer for a fee. Spotify then pays an amount to the record companies from that fee.

That's where the knot is, because more than three quarters of the turnover that Spotify makes, flows back to the record labels. Although Spotify has revolutionized the music industry with that model and has been able to reduce piracy, the company has never made a profit. But now that Spotify is listed on the stock exchange, investors do expect that sooner or later black numbers will be written.

 

After Netflix Originals, Spotify Originals?

Analysts believe that the fastest way to profitability lies in copying the film platform Netflix, which is increasingly offering its own content in the form of the so-called 'Netflix Originals'. By now approaching artists directly and bypassing the record labels, the profit margin can obviously be increased considerably, Wall Street thinks.

Spotify pays today for every dollar of sales that makes it 79 cents to the record labels. Progress has been made in this area because in 2015 it was still 88 cents. But Netflix pays just under $ 66 cents for every dollar of turnover to the major film companies, which quickly drops to 20%.

 

The music industry is less easily disrupted than the film industry, just because everything is managed by the quartet of Universal, Sony, Warner Music and Merlin, who own nearly 90% of all music that can be heard via Spotify.

What remains is a small pond of lesser known artists and some older celebrities like Janet Jackson and Garth Brooks, who have chosen to manage their music themselves. According to the same analysts, this group would represent about 8% of the current Spotify offer.

Spotify is therefore confronted very quickly with the reality of the financial markets. If the share had gone up and down a bit after the IPO, the message that the Swedes are now approaching musicians directly with a price increase of more than 6% was rewarded.

Response from the labels is not there yet, but their power remains enormous. If one of the labels pulls its entire catalog from Spotify, the Swedes would have a competitive problem with the other streaming services, such as Apple Music or YouTube. But we are not there yet. Wall Street put the company under pressure to conjure a rabbit out of his (income) hat. This is the rabbit. Whether the record labels will soon go on the hunt becomes clear.

[intensemojo]

Makes sense. Thought they would go down this road when they went Publlic.