Music Business News, March 21, 2017

A TechCrunch contributor estimated that Spotify is gaining leverage over record labels on the brink of new licensing deals. Also, an appeal went forward in the “Stairway to Heaven” copyright case. And Vevo announced the launch of its new “Watch Party” platform.

 

 

Spotify Gaining Strength, Preparing to Sign New Label Licensing Deals

 

Industry experts speculated last week that Spotify will soon sign new licensing deals with record labels and go public.

 

The Financial Times reported that talks have moved forward in the past few months, and deals may be signed during the next several weeks. Though no final deal has been made, majors will likely accept a small cut in overall royalty rates for the streaming service.

 

According to TechCrunch contributor Josh Constine, the issue with Spotify going public has been that record labels own the music and have had the power to get Spotify to pay more revenue to them for royalties than other music companies plus increase the rate if they felt Spotify was becoming too profitable.

 

However, Constine pointed out that Spotify may now be gaining leverage over labels, building up five different elements of its platform in order to pressure the majors into giving it a more favorable licensing deal.

 

Spotify started out small in 2008. It had to raise more than $180 million in its first few years of operation and also pay labels a sizable advance on royalty payments to draw them into a partnership and be able to launch in the U.S. It also had to give labels stock in order to protect itself in the event of success.

 

Spotify now has over 50 million paid subscribers and a notable base of free ad-supported listeners. It has pulled significantly ahead of popular platforms like YouTube, Pandora, Apple Music and Amazon. Therefore, rights owners will no longer be able to ignore Spotify or risk cutting into their recorded music income.

 

Constine outlined some ways Spotify is decreasing record companies’ power in the music business.

 

First of all, Spotify is having a major effect on the Top 40. Its “Discover Weekly” and “Radar” playlists have given Spotify the power to choose which artists are heard by its listeners. Spotify has prioritized music discovery over reliance on peer-to-peer sharing or direct lines between artists and fans in order to start to compete with the thousands of radio stations that have previously served this valuable marketing purpose for labels.

 

Constine added that Spotify will also need all major record labels to allow streaming of their content in order to complete its catalog. A typical fan does not keep track of which label their favorite artists are on. Losing a deal with even one label would cut out about one-third of its catalog and drive Spotify listeners to competitors.

 

Now, due to its huge number of listeners, Spotify provides a large-enough percentage of each of the record labels’ total royalties that cutting the platform out will cause a big loss.

 

Spotify’s strength also lies in its reach beyond just music. It has to pay out about 70-percent of its revenue from major label music, but not revenue from video and podcasts. The company has recently invested in 12 separate video series and a large number of original podcasts.

 

The more Spotify diversifies the content it creates and cuts the cost of obtaining it, the smaller share of its earnings it has to pay out to labels. It also will get to offer exclusive content that fans will want.

 

Constine pointed out that its free ad-supported tier has driven Spotify’s success, acting as a “subscriber acquisition funnel.” Some labels do not want their music available to listeners that earn them less per stream than paid subscribers when it first comes out. The Financial Times said Spotify may allow labels to withhold top new releases from the free tier in order to get lower royalty rates.

 

Spotify has such a large ad-supported audience that it can now restrict their access to content in order to lure them to the paid tier. Artists like Taylor Swift have been looking for this option for years, but Spotify was never previously financially able to provide it until now.

 

Constine added that if Spotify owns the rights to the music it streams, it will earn royalty payouts. Sources said that Spotify has been discussing direct deals with artists. Musicians who agree to these may be able to get a cash advance in exchange for Spotify owning a percentage of their revenues. Apple already offers up-front payments in exchange for exclusivity, as revealed by Chance The Rapper, who was paid $500,00 and a commercial to make his album Coloring Book. Spotify is looking to strike up more “inclusive” deals that enable artists to have more long-term success on the platform.

 

Appeal Moving Ahead in “Stairway to Heaven” Case

 

The fight over whether or not Jimmy Page and Led Zeppelin stole the intro to “Stairway to Heaven” from songwriter Randy Wolfe will move to a federal appeals court, said the Hollywood Reporter.

 

A jury decided in June that it was not stolen. The jury said it believed Page and singer Robert Plant heard Wolfe’s track “Taurus,” it said the two songs were not similar enough to warrant a different verdict.

 

Attorney for the plaintiff Francis Malofiy said last Wednesday in a 90-page brief that it is “quite clear” that Page used “Taurus” as inspiration when writing the intro to “Stairway” and that the jury only found the opposite because of errors in evidence and faulty instructions.

 

He explained, “The most important of these errors was that the trial court refused to let the jury hear the full and complete composition of ‘Taurus’ embodied in the sound recordings that Jimmy Page possessed, instead limiting the comparison to an outline of the ‘Taurus’ composition in the deposit copy lead sheet.”

 

Many cases related to sound recordings created before the mid-70s involve these issues. In the mid-70s, the federal government started recognizing copyright protection of the songs themselves rather than just protecting that which was written in the sheet music.

 

Jury instructions as well as the issue of using sound recordings were also a major part of the “Blurred Lines” lawsuit. In this case, the jury found that the track infringed upon Marvin Gaye’s work and awarded his estate millions.

 

In that case, attorneys for defendants Robin Thicke and Pharrell Williams argued that “while correctly excluding the ‘Got to Give It Up’ sound recording itself, the court erroneously allowed the Gayes’ experts to testify about the sound recording anyway, including by playing their own musical excerpts based on the sound recording.”

 

The appeal in that case cited the Zeppelin decision and argued that the court was “proper” when it asked the jury to disregard “musical building blocks” that aren’t copyright protected.

 

In the “Stairway to Heaven” case, Malofiy said the court was wrong to not explain to the jury that “combinations of otherwise unprotectable elements can themselves be afforded protection.”

 

Vevo Launching Watch Party

 

Music video hosting service Vevo announced the launch of its new Watch Party platform on March 16. According to MSN, the service lets viewers chat, create video playlists and watch vides with their friends within the Vevo platform.

 

The move is an effort for Vevo and the music industry to get back some of the listeners it lost to YouTube, one of the most prominent places to watch and listen to music online. Vevo began in 2009 as an initiative by Universal Music Group and Sony Music Entertainment.

 

Jon Carvill, Vevo vice president of communications explained the move to launch Watch Party to CNBC at the SXSW Festival last week: “We do want to create some things to give some exclusivity to using Vevo owned and operated … If they want to go watch the videos on YouTube, obviously our users can do so as well, but we want to give them a reason to come to Vevo.”

 

Watch Party cuts out YouTube, as the YouTube platform does not have co-viewing capabilities. Watch Party will be available in April on desktop and move to mobile at a later date.

 

Music channels owned by Vevo now make up a large number of YouTube’s views. comScore data from October 2016 indicated that 43-percent of YouTube’s monthly U.S. audience specifically watches Vevo videos. Globally, there are 21 billion views across all platforms.

 

Vevo currently has a licensing agreement with Warner Music Group, which gives it the right to videos from the three largest record companies. It also has investors Abu Dhabi Media and Google. Google purchased seven-percent of the company in 2013 in a deal to keep Vevo videos streaming on YouTube.

 

Vevo has been working hard to bring users into its own platforms and rebooted in July of last year with its own app. Most of its advertising revenue comes from YouTube videos, but there is a chance Vevo will increase its profits if it can build its own viewership.

 

Carvill said, “YouTube is a really important commercial partner and continues to be a strong partnership … But really for Vevo, we wanted a strong set of owned and operated properties across desktop, mobile and the web which would be the best choice for people who really love music videos to enjoy that content.”