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Spotify vs Labels: Royalty Wars

Former Chairman and CEO, Sony Music, UK

IP Interview
Published on October 17, 2020

Why is this interview interesting?

  • Potential evolution of Spotify's cost of licensing content from major record labels
Executive Bio

Nick Gatfield

Former Chairman and CEO, Sony Music, UK

Nick is a British music industry executive with over 34 years of experience scouting, signing, and working with global artists such as Amy Winehouse. Nick started his career as a musician in the band ‘Dexys Midnight Runners’ before moving into recorded music. At the age of 26, he was made Director at EMI Records, the youngest in the company’s history. Over the next 20 years, he went on to lead global labels such as PolyGram and Island Records and has worked at three of the four major record labels. More recently, as the Former Chairman of Sony Music, he was leading negotiations with Spotify and both new and old artists in the repertoire. Nick currently runs Twin Music, an incubator for new talent, which funds and services new artists coming to market.

Interview Transcript

If you play this forward, five to seven years, do you think how much Spotify have to pay back to the labels, for the repertoire, will decrease, as they gain scale?

No; I actually don’t see that there will be much change there. The reality is – and I think Spotify have realized and this is why they have such an emphasis on third-party content, such as podcasting – it’s very hard to build a significantly profitable business, licensing third-party repertoire, regardless of what it is. Yes, there are minor tweaks, in terms of the pay away but, by and large, the range will be 65% to 70% of major repertoire, because that’s what is now. Now, the majors look at it and go, Spotify are kind of in control and driving the market. In some of those initial discussions with Spotify and as recently as three years ago, there used to be a minimum guarantee that Spotify had to pay the rights holders, regardless of whether the streaming consumption was there or not. There were penalties built in for missing subscriber growth targets. The rights holders really screwed it to Spotify. Spotify always hit their targets and, generally, exceeded them. But they realized, we’re never going to be able to get our pay away significantly lower where we are going to be able to drive a profitable business this way. We have to diversify our revenue streams. We have to find alternative, non-major owned repertoire; we have to build what they call a two-sided marketplace, as well. We have to provide tools for artists and we have very rich data that we provide to artists. We are a marketing platform, as well, so we can start monetizing those aspects of what we have.

That is absolutely what has happening. But I think the majors’ ability, right now, to demand too much of Spotify has gone. I think the balance of power has shifted to them.

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