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Music Business News, February 14, 2017

Analysts indicated that Spotify is facing challenges with major labels as it makes moves to go public. And Universal Music Group (UMG) announced the relaunch of Polygram Entertainment. Also, Facebook said it is making moves to create a competitive music video platform.

 

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Spotify Facing Challenges Going Public

 

Time is running out for Spotify as it moves to go public, according to BBC News.

 

The firm was planning to go public in 2017, but TechCrunch reported earlier this month that these plans might be pushed to 2018 in part thanks to challenges the company is having striking up long-term licensing deals with the three major record labels: Universal; Sony; Warner.

 

Industry experts estimated that Spotify pays nearly 55 percent of its revenue to labels in royalties plus additional money to music publishers.

 

The Swedish-based company has over 100 million users, 40 million of which are paying subscribers to its Premium tier and is now available in 60 countries. It also made up 51-percent of music listening in the U.S. in 2016. While Spotify is not the only streaming platform, it is seen as the leader above services like Apple Music, Amazon Prime Music, Deezer and TIDAL.

 

Still, analysts agreed that Spotify will have to lower the percentage it pays out in royalties in order to earn a profit and avoid running out of cash. This move will likely not be popular with artists, who are already disgruntled with the low royalties being paid out by streaming services.

 

In March 2016, Spotify raised $1 billion from investors at an interest rate of five percent per year and received a discount of 20 percent on shares once they become public. But the agreement terms state that the interest rate rises by one percentage point and the discount by 2.5 percentage points every six months until Spotify goes public. This means that Spotify will pay larger sums of money to its creditors to take care of interest on the loan, limiting its ability to keep up with obligations to labels.

 

Despite grim figures, Billboard pointed out that “the entire music business now has an interest in its success … If it’s not already too big to fail, it’s headed in that direction quickly.”

 

Universal Music Group (UMG) Relaunching Polygram Entertainment

 

UMG announced it is relaunching Polygram Entertainment in order to establish a presence in the growing original programming market.

 

Billboard said its first production will be a documentary about the impact of the Motown record label, The Story of Motown. Polygram will develop and produce additional feature films and both scripted and unscripted TV productions. The company is at the moment financing and co-producing Mystify, a biopic that outlines the life of Michael Hutchence of INXS. Last September, Polygram and Studio Canal were co-distributors on Ron Howard’s The Beatles: Eight Days a Week – The Touring Years.

 

David Blackman, UMG’s head of film and television development and production is the head of Polygram. UMG executive VP Michele Anthony is overseeing the new initiatives and explained, “Polygram will play an important role in furthering UMG’s global strategy to produce the very best in audio-visual storytelling and provide our artists with an important medium for their expression and creativity … Music is essential to film and television — and the stories surrounding our artists and their music provide compelling narratives for audiences around the world.”

 

Universal Music Publishing Group chairman/CEO Jody Gerson, Universal Music Publishing Group’s chairman/CEO, who is also providing oversight added, “With Polygram, our multi-talented recording artists and songwriters will have even greater opportunities to work with the very best storytellers, writers, producers and directors in film and television. With David’s strong creative instincts and production experience, Polygram will enable new outlets for music-based programming, as well as provide a needed forum for stories about the artists, music and events that have shaped and impacted culture globally.”

 

Facebook Developing a Competitive Music Component

 

Facebook is in discussions with major record labels, music publishers and other rights holders as it works on building a music video component, reported Fortune. The company is looking to ensure that music videos on the social media site can be posted without infringing on copyright rules by putting the proper licensing in place.

 

The company went to a music industry event in L.A. just prior to the Grammys. The event presented a variety of emerging artists on the Universal Music label who performed for representatives from TV networks and streaming services including Spotify, Pandora and YouTube.

 

Not too long ago Facebook, the world’s largest social network, hired Tamara Hrivnak, previously the director of music partnerships at YouTube, to be in charge of its global music endeavors. This move indicates that the company is plotting its move full force into the music space and interested in a long-term plan that involves hosting official music videos.

 

Facebok has been in talks with the music industry since 2015, when both Billboard and the New York Times wrote that it was going to add music videos to the news feed. At the time, it was talking to four major record labels, and there were rumors that the company would eventually start its own streaming music service.

 

Partnering with Facebook would be beneficial to the music industry for a number of reasons. The platform reaches more than 1.8 billion people, and having a strong relationship with a company that serves an audience of that size would give record labels more leverage when negotiating deals with YouTube, Spotify and other services.

 

The music business has recently been outspoken about its discontent with YouTube in particular, which the industry believes does not pay enough for licensing rights. Reports indicated that Facebook has already offered to pay more than YouTube pays.

 

An obstacle for Facebook is its lack of a process similar to YouTube’s Content ID system designed to for flag and also remove videos with copyrighted content. In fact, president of the National Music Publishers Association, David Israelite accused Facebook of hosting too many user-generated videos featuring unlicensed music. He said, “It would be wise to befriend songwriters and publishers as partners now—not pursue the path taken by other digital services who now find themselves at odds with the creative community.”

 

A December report said that Facebook is working on a system that will function similary to Content ID.

 

Facebook is still new to the video advertising business, so whether or not it can deliver the same features as YouTube is unclear. Once Facebook has its copyright-detection system in place, it may be able to establish deals with labels and copyright holders that will help it compete with YouTube in the online video space.