Spotify’s Major Label Contracts Have Lapsed, Talks Stalled Over Rates, But Both Sides And Artists Could End Up Winners

Spotify$Spotify's contracts with all 3 major labels have lapsed. That's not news to any of use who follow the music industry, but what is new is a report that talks are stalled over Spotify's request to pay a smaller percentage of its income to labels and artists.

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Spotify's contracts have lapsed with all 3 major labels, and they are operating on month-to-month licences, according to a new report.  Talks to reach a new agreement are reportedly stalled over Spotify's request to pay a lower percentage of income to rightsholders. 

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Spotify reportedly pays labels about 55% of combined ad supported and streaming revenue, and Apple Music is widely believed to pay out 58% of subscription revenue after free trials. Now, both sides want a change, sources tell Music Business Worldwide.  Spotify wants to pay a lower rate; and labels, annoyed by recent cut rate promotions by Spotify, think that its time the music streamer pay more.

Both sides have a lot to lose.

Streaming has become an essential revenue source for labels, who also see Spotify as a key independent counterbalance to corporate giants Apple, Google and Amazon. For it's part, Spotify needs to have contracts in place before it can launch the IPO that its investors are clamoring for. It's also important to remember that all 3 major music groups own a stake in Spotify, and would benefit from a successful IPO.

But both sides and even artists could all end up winners.

winnerThere is at least one scenario that could settle these talks and create a win for all sides. The labels could agree to flat or even slightly lower rates in exchange for increased limitations on Spotify's free tier that would encourage users to pay for the premium service that returns greater per user revenue to labels, artists and even to Spotify itself.

Spotify, which has long used its free ad supported music service as gateway to paid subscription, would undoubtedly fight such a move.  But with Apple Music, Tidal, Rhapsody and soon to launch services from Pandora and Amazon all operating without a free on demand tier, Spotify may be forced to limit its own free offering. That could mean monthly listening limits or a middle $5 per month tier, as Pandora and Amazon are said to be pursuing in their label talks.

In the meantime, relax, its in no one's best interest to disrupt the music industry's fastest growing revenue source.