Spotify: A New Record Label?

Before we go onto podcasts, just tying up the section on the record labels, it’s possible that the unit economics of the record labels, going forward, could be under serious pressure? Potentially, independents taking market share, artists moving away from the larger record labels or, if they’re staying, record labels putting up more capital for advances, to keep the artists. Do you see artists demanding more capital from the revenue they are receiving from Spotify and the streaming revenues?

When most artists come to a record company, they are at the beginning of their careers. The deals that they make are to the advantage of the record company, if they are successful. If the artist is not successful, then the artist has probably done a good job, because they wouldn’t have had the resources. The record companies control the records that are produced, effectively, for the first term of copyright. If you’re an artist, it feels really bad to move to somebody else and not have any control. We’ve seen this time and time again; it’s a problem. The record companies have real strengths in these discussions.

Because of the original IP that they hold from the artist?

Yes. Largely, what happens is, they write another big cheque, it feels fantastic and they will, again, have to get that recouped against the sales going forward and they move on. That’s what happens. The real critical thing, to see a full change in the structure is that the first or second deal that an artist does, that’s where the shift to another model is possible. It’s a little hard after that, until you get all the way to the top and, in effect, what happens is that if you are a Drake, he has a very complicated relationship, back at Universal. He’s getting a big tranche of the flow, because what he can do is, he can just stop recording. He’s too big a player. That’s the 1%. \

For this change to happen, what could Spotify do? If you’re Daniel Ek and you know that you have increasing power, in the sense of data and understanding and also more revenue and users, how would you be looking at playing this change, in the structure of the industry?

I’d be very careful, if I were Daniel, about being perceived as trying to disintermediate the majors. But I would be very aggressive if I were he, and I think he intends to be, on building that data stream and monetizing it and making it available to not just majors. Trying to create a greater diversity of sources of content. I think that is an important thing. It is absolutely true that Spotify needs 100% of the content, to be competitive. It is true that the record companies can’t afford not to be on Spotify. For all their arguing against each other and all the difficulties and other stuff that goes on, the deals are not going to move very much, if at all. Something in the marketplace is going to have to shift for that to happen.

What could that huge shift be? It seems as if there is another huge revenue line or potential for Spotify, with this data, with independents, with artists directly. But you also have the big elephant in the room, which is the large record labels, which drive 85% of your streams, pretty much.

There are ways to do that which is, we have all this data and we’ll make that available to you and for that, we’ll take 1% of your profits. Therefore, we will benefit more than just on a, pay me $10,000 and I’ll give you the information.