Spotify has recently begun not only allowing artists to directly upload their content to the streaming service, but also cutting directly deals with artists. Here we take a closer look at what exactly artists, labels, and Spotify all get out of these deals.
Guest post by Bobby Owsinski of Music 3.0
As previously posted, Spotify is now doing both direct deals with artists, and allowing them to directly upload their content onto the platform. There have been a lot of announcements to that effect, but not much on exactly what an artist receives when it comes to royalty payout – until now. Music Business Worldwide did some digging to understand the payouts in most scenarios.
According to the article, Spotify confirmed that it’s paying 50% of the net revenue to the artist. This is pretty much what was expected, since anything less would make a direct deal of dubious value, especially when it comes to using a distributor or label.
So what does Spotify pay out to a label? After recent licensing negotiations, labels now receive 52% of the net revenue. Sounds better as a number, but don’t forget that the label pays the artist anywhere from 15 to 50% of that 52% (and 50% is only reserved for superstars).
This is how it works out in real money.
For a direct 50/50 deal:
$10,000 in net revenue
Spotify receives $5,000
Artist receives $5,000
For a label deal:
$10,000 in net revenue
Spotify takes 48% = $4,800
Label takes 52% = $5,200
Artist royalty (typical 20% deal) = $1,040
As you can see an artist makes a lot more on a direct deal so that seems attractive, but you have to weight the value of what a label can bring to the table. If a label is going to provide you marketing that you can’t get anywhere else, hopefully the net amount will be well beyond the $10k. The visibility that a label can provide is worth it in that case.
The problem is that labels have short attention spans and if you not one of the priorities, then you may not be seeing any of the possible label benefits. That’s when a direct deal starts to look pretty good.
That being said, I’d venture to say that most new artists would jump at the chance to sign with a label, especially a major. As long as Spotify is at the top of the streaming heap, there may be a better strategy to think about.