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

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.

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