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.

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Companies: sony music, spotify, unversal music

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

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The Mighty Buzzard (profile) says:

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.

Hulser (profile) says:

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.

Anonymous Coward says:

Why We Hack It!


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


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.

MrWilson says:

Re: 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.

Josef Anvil (profile) says:


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.

out_of_the_blue says:

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.

Jay says:

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.

ac says:


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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