Streaming is the new frontier for music -- denying it is only going to make the transition harder. The primary issue has been getting artists, songwriters and content creators paid a fair shake for their music. While most of the attention has been focused on services like Spotify and their small payouts, little has been given to the labels and their contracts with the streaming services, which have been kept secret until now. The Verge was able to obtain a copy of Sony's previous agreement with Spotify, which shines light on the splits, advances and payments that the major label was able to get from the Swedish streaming giant, as well as some outside revenue sources that have not been previously shared.
The 44-page contract is incredibly complex, which has been one of the reasons why deciphering payouts to artists and labels has been so difficult. Sony was able to secure several concessions from Spotify in the contract.
Over the three-year length of the contract, Sony was able to secure up to $42.5 million in advances from Spotify with the money being used for undisclosed reasons. The label, according to a Verge source, likely kept it. Possibly the most important section was a Most Favored Nation clause, which ensures that Sony's payouts and advances can be amended if any other label secures a better deal than the current Sony one -- so Sony is ensured the best deal possible over the span of this three year contract.
Advertising is subject to scrutiny in the contract. Sony was given up to $9 million in ad space on Spotify to do with as they please -- either use for themselves or sell to other parties. There is also some outside revenue that Spotify has not disclosed in the past. Spotify was able to take up to 15 percent "off the top" of revenue from ad sales generated by third parties hired by the streaming service.
Before you totally jump all over Sony for the various traps and clauses in this contract, remember this was signed in 2011. This was well before Spotify had developed into the $8 billion powerhouse that holds a massive influence over the industry. It was still a medium-sized business, just expanding from Europe to the United States and was negotiating from a position of weakness to get Sony's catalog.
If this contract is any indication of how Sony creates contracts, then it is easy to see why their negotiations with Soundcloud have broken down and have developed into a toxic relationship.
