Ways In Which Spotify Is Becoming A Threat To Record Labels

For the longest time, record labels have forced Spotify to pay 70 percent (or more) of its revenue for royalties, and anytime they want, these same record labels could increase the pricing and Spotify will not be able to do anything about it. Almost a decade ago upon its debut, Spotify had no leverage because, well, at that time, it was nobody. In its first few years, it had to raise more than $180 million in order to pay the ridiculous upfront advance on royalty payments that labels were demanding. Moreover, Spotify had to sell the record companies equity.

But things have changed in the last few years -- Spotify now has 50 million strong paid subscribers and a very, very big base of free ad supported listeners. Simply put, the service now has some leverage over the record companies -- it no longer needs labels to earn a buck, and now, the labels now need Spotify to push their artists’ songs. 

It can even be argued that Spotify now decides which songs will make it to the Top 40. Through its Discover Weekly and Release Radar playlists, the music streaming company can essentially choose which musicians and songs will become the next hits. It goes without saying that record companies will be wanting their new material to be included in Spotify’s Discover Weekly and Release Radar playlists. 

Back when Spotify first began, it needed all the major record companies -- namely Sony, Universal, and Warner -- to allow the provider to stream their music content. Because if it did not get all major labels, it ran the risk of losing its customers, especially those who wanted access to every popular recording artist out there. But now that Spotify offers a big enough percentage of the total royalties, labels now do not want Spotify to cut them off.

The great thing about Spotify is that it is not just about music -- it also includes any content worth listening to, including podcasts and video. With regards to that last part, Spotify is actually investing money in developing original content for a dozen different video series, which include Drawn & Recorded quasi-docus on the history of popular music. The company is also developing content for original podcasts. 

There is even talk that Spotify is currently exploring the idea of becoming a sort of record label itself. It could attract musicians who could ink a standard record label style deal with Spotify, and in return, Spotify could own a percentage of the recording revenues.