Leaked Sony-Spotify Contract Reveals Inner Workings of Streaming Music

Five big revelations that look at how your streaming music sausage gets made

A leaked contract between Sony and Spotify reveals the inner workings of the streaming music business. Credit: Hero Images/Getty

Somehow, Verge managed to get a copy of the top-secret contract between music-streaming service Spotify and Sony, the major record label that owns music by Michael Jackson, Bruce Springsteen, Mariah Carey and One Direction. The terms may have changed since both companies signed this 42-page deal on January 18th, 2011, but the big news is the big money. Here are the top revelations from the leak:

1. The Money's Really Good...for Labels
Sony received $25 million in advance payments in the first two years of its contract, then another $17.5 million from an optional third year. (The payments are recoupable, which means Spotify could have received that money back if it took in more than that in a given year.) The label likely did not share these payments with its artists. "The whole streaming business has been a ridiculous system of not paying independent labels and artists," Allen Kovac, manager of Motley Crue, Blondie, Five Finger Death Punch and others, tells Rolling Stone. "In the industry, everybody knows it's a way to keep that capital to float the record labels."

2. Who Needs a Level Playing Field?
"Most favored nations" clauses came up last year when YouTube attempted to negotiate contracts with independent record labels for what became its Music Key streaming service. Indie reps complained they lacked the clout to demand such a clause, giving their major-label competitors a distinct advantage. "If that's a level playing field, I'm sorry, but Death Valley is a mountain," veteran independent songwriter and guitarist Marc Ribot told Rolling Stone last year. But the "MFN" language is standard in music-streaming contracts, including this one. Here, it essentially means that if any competing label, like Universal or Warner, gets a better yearly advance rate, Sony can insist on making up the difference in cash.

3. How Much Artists Really Get Paid
How much does Spotify really pay artists? This territory has been covered before, particularly by the company's chief executive, Daniel Ek. It's a complicated formula, but as Ek has said, the streaming company essentially gives 60 percent of its revenue to rightsholders — and Sony takes a cut based on its proportion of overall streams. However, as Verge reports, if customers were to use Spotify a certain number of times, a different revenue formula kicks in, which amounts to between $0.00225 cents and $0.0025 per stream. Of course, the labels have to share a portion of that money with artists, depending on their contracts.

4. No Hacking!
Record execs mistrust tech execs. It's actually written in Sony's contract that Spotify reps are not to inflict "viruses," "worms," "spyware," "destructive codes" or "adware" onto their customers. Why this needed to be spelled out is unclear. Daniel Ek probably shouldn't murder anybody, either, but the Ten Commandments aren't in the contract.

5. Cut It Off Any Time
Sony can yank music from Spotify with just two days notice, for any reason, without negotiation — by e-mail, no less. Why? "For reasons of artist relations, loss of rights and/or any third-party claim regarding such content," reads the contract. Pity the poor Spotify rep who gets the Sony e-mail that Springsteen no longer feels like streaming.