Sonygate as Spotify Contract Leaks

Even in a quiet news month, you can always rely on Spotify, who were this time generating unintended headlines with the leaked publication of a 2011 contract between the streaming service and Sony signed just prior to Spotify’s launch in the US.

The Verge published the entire agreement online, allowing The Gen to squeeze the juice out of this previously shrouded agreement.

Spotify agreed to pay a $25m advance to Sony in the first two years of the agreement, with a $17.5m advance for an optional third year, which was presumably taken due to Sony’s catalogue remaining on the platform. Such advances are recoupable for Spotify, with future payouts subtracted from the overall total.

In addition to a 60% share of gross revenue, Sony also assert a ‘Most Favoured Nation’ clause meaning that it can seek to amend major aspects of the contract if a better deal is obtained by another label. Interestingly, Sony were also handed $9m of free advertising on Spotify, which it had the option to sell onto third parties. Under a minimum based usage, Spotify pay Sony $0.00225 per stream but if Spotify misses growth targets in the preceding month, that number could jump to $0.0025 per stream.

On the Spotify side, one of the more interesting revelations was that the service can take up to 15% from ad revenues handled by third parties which isn’t counted in the gross revenue- a figure that hasn’t previously popped up in Spotify’s ‘Open books’ style statements to the press when emphasizing its 70/30 revenue split with publishers and artists.

All of which does nothing to dispel rumblings around lack of transparency, kickbacks and the advantages that Spotify offers to major labels (some of whom, including Sony reportedly invested heavily in the platform) over other parties. However, as opposed to simply being a juicy piece of gossip, it may also generate some crucial debate on what labels aren’t sharing with artists within these agreements as opposed to always pointing at the big bad streaming wolf.

Of course, the leak resulted in some inevitable Trade Association statements, the first of which was an open letter from the International Music Managers Forum, which pulled no punches, stating: “Instead of mystery deals hidden from the artists whose copyrighted creations the deals exploit there should be an obligation for transparency. Digital promises greater transparency than the old physical markets. The artists sign deals with labels and publishers. We don’t just want artists to be paid fairly, we also want them to get the relevant usage data. It is impossible to prove fair remuneration is occurring without transparency”. Read the complete statement over at CMU.

In a further twist, Music Business Worldwide reports that Sony has today issued a statement declaring that all advances from Spotify (i.e the $25m cited above) are shared with artists.