If Spotify Is Making Labels So Much Money In Europe, Why Are They Still Demanding Crazy Upfronts In The US?

from the major-label-logic dept

Fri, Oct 29th 2010 3:08am — Mike Masnick

For a few years now, people have talked about Spotify as the "next great hope" for the recording industry. For those who haven't seen it, it's effectively an "iTunes-in-the-cloud." I've played around with it, and it's definitely a hell of a lot nicer than most other things out on the market and the company continues to improve the product and to play around with some interesting additional models. I'm always a bit wary of anything that people think will "save" an industry, and Spotify is no exception. I think it's nice and useful, but it alone certainly isn't going to be the answer to the recording industry's inability to adapt to a changing marketplace. That said, one of the more amusing things to watch has been the fight over bringing Spotify to the US. It's been rumored to be "coming soon" for about a year and a half now and every time there's some rumor about it getting close, there's another rumor about the ridiculous terms and conditions the labels are insisting on to launch it here. They already have deals in Europe, but apparently, the labels want much better deals in the US.

The latest rumor says that Spotify is (once again) closing on deals with the major labels for a US launch, though it's going to involve massive upfront payments to the major labels (don't expect any of that to actually go to the artists). This has become pretty typical for the majors -- demanding massive cash up-front, which is why so many music-related startups have died an early death. The startups simply couldn't make enough money to cover those huge upfront fees. Now, Spotify might be a bit different in that it's raised a ton of money on the strength of its success in Europe and so it probably can handle the cash payment, at least initially.

But here's the thing that's strange. Just as the news of these huge upfront payment demands is leaking, Sony and Universal Music are both admitting that they're making more from Spotify in Sweden than any other retailer -- including iTunes (which, by the way, sort of puts a dent in Apple's attempt to spread FUD about Spotify to the labels).

So, here's the thing: if the labels are making so much money from Spotify in Europe, why have they fought so hard against doing a deal in the US without huge upfronts and/or guarantees? Part of it may be that the money in Europe has really only ramped up in the past few months, but part of it might just be how the major labels deal with music startups these days -- as seen by various quotes from major label bosses that suggest a jealousy of any other company being successful in the music business even if it helps them succeed as well. Basically, if another company is successful, these execs seem to think that they must have been given a bad deal. It's as if they don't understand how a non-zero sum market works. They believe if someone else is doing well, they must have been ripped off, so they want to make deals that practically cripple any other company, so that at least they're not doing as badly as those new companies.

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Filed Under: europe, licensing, music
Companies: sony music, spotify, unversal music

24 Comments

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The Mighty Buzzard (profile), 29 Oct 2010 @ 5:15am

I have no idea
I really don't know why they would pull crap like this. They're acting a like bratty children who throw a tantrum if every other child isn't looking at them with envy as they get all the attention. Since that makes no business sense whatsoever, what I really want to know is why their shareholders aren't revolting and firing the boards and all the officers. I mean, it's abundantly clear that they're failing in their fiduciary duties to their shareholders.
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Anonymous Coward, 29 Oct 2010 @ 5:19am

An industry without any real product that is based on a service should be very careful on how it conducts itself indeed.

Other may just come in and provide better service than they do.
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Del Boy, 29 Oct 2010 @ 5:22am

Model
This only highlights what the Labels are all about - Money for nothing, and sticking to their old worn out business model.
Doesn't this open the door for new Labels with modern business models, time to put the dinosaurs to sleep.
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Anonymous Coward, 29 Oct 2010 @ 5:24am

Why We Hack It!
http://lifehacker.com/5672997/the-benefits-of-disobedience-why-we-hack

Want to share this, with people here and show how important that is for everyone.

Why?

Because seeing the industry flip-flopping all over the place I realize that much of their problems is because they kill hackers on the spot and it is destroying them.

This be a lesson to others.
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Sk3ptic (profile), 29 Oct 2010 @ 5:26am

Go ahead surprise me
Just once in my life I'd like to read one of these record industry stories and be surprised by something they are doing...
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Jay (profile), 29 Oct 2010 @ 5:27am

So...

This is basically the definition of a monopoly and yet no judge will see them throwing a temper tantrum about the money they haven't earned?
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fogbugzd (profile), 29 Oct 2010 @ 5:50am

Re: I have no idea
>>They're acting a like bratty children who throw a tantrum...

Basically they are bratty children throwing a tantrum. Except that they are now approaching 18 years old and are afraid they are going to get thrown out of the house.
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Anonymous Coward, 29 Oct 2010 @ 6:12am

This sounds typical, another reason the music industry has such a bad reputation.

idiots the lot of them
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Anonymous Coward, 29 Oct 2010 @ 6:13am

Be careful what you wish for...
Just hope it does not surprise you negatively.
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Anonymous Coward, 29 Oct 2010 @ 6:28am

Exactly! Well said! The Artists never see any of it.
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Marcel de Jong (profile), 29 Oct 2010 @ 6:55am

Re: Re: I have no idea
They are young, dumb and scrounging off mum.
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Josef Anvil (profile), 29 Oct 2010 @ 7:06am

?????
So what is the upfront cash payment for? I never hear that in any of these articles. It's not that I don't believe that the labels want free cash, but they must have a reason for it?

Licensing fees? I guess Im just not sure how they can demand payment for goods not sold. I can see wanting a piece of the sales but asking for cash just to do business in the US seems more than odd, but somehow illegal.
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Anonymous Coward, 29 Oct 2010 @ 7:15am

Re: ?????
Its a "We won't sue you, maybe" fee.
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harbingerofdoom (profile), 29 Oct 2010 @ 7:31am

Re: Re: I have no idea
more like 40 years old and afraid of getting thrown out of the house
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Jason, 29 Oct 2010 @ 7:42am

Well think about it...
"Basically, if another company is successful, these execs seem to think that they must have been given a bad deal."

Think about it: if they came up in the business, then all they've known is an industry that wants to rip them off.
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out_of_the_blue, 29 Oct 2010 @ 7:51am

Musician - label - Spotify - buyer.
Still at least one too many middlemen there, and I'm leaving out the RIAA. Let's say that the labels have the machinery and knowledge in place to handle musicians and contracts; question is why they're not marketing directly to buyers. I'd say it's because they're stuck in the outlets / advertising mode, not taking advantage of possibility of informing buyers directly. -- Don't really need retail outlets to be in *one* website, even, once a group is known. It's that getting known phase which is difficult.

However, IF direct marketing worked (and I think my reservations about getting lost in a sea of similar musicians is accurate), but IF it worked, then there's no place for middlemen at all. "Studios" might still be used, but for hire, no royalties.

So I still see only two possibilities: the current system will go on slowly getting less income but more "laws" in its favor, or it'll pretty much disappear except for a small number of big hits who can afford to support its overhead for the multiplier effect. -- I'm betting on the first. Too many people have too much to gain (and keep) for it to be abandoned.
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ac, 29 Oct 2010 @ 8:37am

pride
My guess is that they feel that by allowing Spotify to launch in the US and presumably subsequently making money from its operation, they are admitting that their model is obsolete. If I was a board member, I would be pissed.
"You mean we make a ton from this in Europe, but are dragging our feet launching it in the US? You're all fired. Find someone that will pick up the ball and run with it."
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Hulser (profile), 29 Oct 2010 @ 9:07am

Re: Model
This only highlights what the Labels are all about - Money for nothing, and sticking to their old worn out business model

Personally, I think it has much more to do with the latter than the former. If it were just about money, then the US labels would be jumping all over this because it's a proven moneymaker. This is the point of Mike's post. But because they're not, it must be about something else. While there's no doubt that the music labels are greedy, there's something more fundamental and complex at play here than just simple greed.
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Hephaestus (profile), 29 Oct 2010 @ 9:14am

Re: Well think about it...
"Think about it: if they came up in the business, then all they've known is an industry that wants to rip them off."

Its more like they have built their lives on ripping people off and are paranoid someone will do the same to them.
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nasch (profile), 29 Oct 2010 @ 9:22am

Re: Re: Model
Not necessarily. If they can get Spotify to give them royalties on an ongoing basis AND huge up-front cash, that's even more money for them. They might simply view anything other than huge up-front payments as leaving money on the table.
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mattarse (profile), 29 Oct 2010 @ 10:36am

Just a pet peeve of mine - Spotify is not available in Europe, it's available in 5 countries but not even half of Europe.
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MrWilson, 29 Oct 2010 @ 11:36am

Re: Be careful what you wish for...
I don't think that's possible. I honestly wouldn't be surprised to hear that some music industry exec put a hit out on someone because that person screwed up their business model.

Granted that it's not practical or rational in the aggregate but these guys have shown that greed drives their every action and they're not above letting artists starve if they can swindle them out of their paycheck with clever lawyering and accounting.

It's only another step for an aging megalomaniac with a sense of entitlement to decide that someone else doesn't deserve to live for the millions of dollars they've cost him. People have killed for much less.
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Jay (profile), 30 Oct 2010 @ 12:00am

Re: Musician - label - Spotify - buyer.
That's pretty much what's happening.

The reason there aren't many CD stores is because the music industry basically killed it off for wanting large fees. They made a killing while destroying a golden goose.

Then they sued Napster... And Grokster... And Limewire...

Now that Spotify is in a better position and Apple competes and seems to give them a carrot every now and then (like taking off the DRM without their permission), the studios seem to have less and less to do with staying relevant without the copyright laws to prop them up. Even then, they aren't working except to charge high debt to a few individuals for either files or little proof.
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Dubio, 16 Apr 2011 @ 11:16am

Business?
If music industry exec were to be business savvy, which obviously they are not, they would just buy spotify and make it their cash cow. Embrace the "enemy". That's what the not-so-many-successfull media execs do.
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