Killer Music Licensing Deals Crippling Spotify

Details of the draconian music licensing deals Spotify has been forced to agree to by record labels have leaked, amid suggestions that the streaming music service will never be profitable. The terms – which apply to other streaming media services as well, such as Rhapsody – conspire to undermine the streaming companies' negotiating power, GigaOm reports, with such gems as huge upfront payments and payout deals based on the biggest income of either minimum subscriber fees, per-play costs or total company revenue.

There's also time-consuming and expensive data collection, made mandatory by the agreements, with little in the way of standardization for reporting to each individual label. Even the raw tracks themselves are supplied in different formats with different data tagging, and must be fettled into a consistent shape before they can be deployed.

To cap it off, a "most favored nation" clause means that even if one label negotiates a more service-friendly deal, it can later insist on the same terms as agreed with a different label. The best terms are shared between all the labels; the reason, insider Michael Robertson (former CEO of MP3.com) says, streaming media services often find it easy to get a first label onboard, knowing they'll share in any good deals negotiated down the line. Spotify and others aren't free to go to other suppliers, since the labels and publishers hold the copyrights.

It's well worth reading if you've ever wondered why Spotify and other services have such difficulty spreading into new markets – the much-delayed Spotify US launch is a good example – and, indeed, how labels are making their money in the new digital age. The fact that the labels are likely to get even tighter with the splitting up and sale of EMI doesn't bode well for fairer negotiations in future.