Spotify Is in Trouble With Record Labels (Again)

Relationships between the old and new guard in music — i.e. the tech firms driving the streaming revolution and the record companies still producing the actual content for it — were always bound to be tumultuous. Case in point: Just a year after Spotify renegotiated its deals with the three major labels to get back in the industry’s good graces, it is testing new business models that could be throwing it right back out.

One current key point of dispute is Spotify’s interest in acquiring music by licensing it directly from independent artists, according to reports. While the Swedish streaming company relies upon its partnerships with Universal, Warner and Sony to populate the vast majority of its 35-million-song catalog, it has been quietly paying advances to management firms and other artist-representation groups to get direct deals. While offering a better financial payout and ownership security for artists, those new forms of business are angering label executives who view the move as Spotify cutting in on their territory and leaving them out in the cold. In all this, Spotify insists it is not trying to become a record label — CEO Daniel Ek actually said the words “We are not acting like a record label” in an earnings call in July — but industry veterans told the New York Times last week that they are growing increasingly distrustful.

Spotify is also dealing with paying to use music videos in many of its playlists. Many playlists, such as the company’s signature RapCaviar offering, entwine audio with snippets of video for listeners on mobile devices. Yet Universal Music Publishing executive Marc Cimino told Bloomberg that Spotify has been in dispute with music publishers for months over how much it owes for using those videos, and that his company just wants “to allow our digital partners to experiment and at the same time make sure our songwriters are paid properly.”

Both of Spotify’s tussles, over video payments and independent deals, are highlighting the understandable frustration on each side in music as the methods of distribution shift to an entirely new default, bringing about big cracks in the old chain of command. With the respected former music manager Troy Carter leaving his post at Spotify this year, there may be even fewer ways for the companies to bridge those gaps going forward — but it’s highly unlikely that labels or publishers will ever abandon Spotify entirely. Speaking to Bloomberg, Macquarie analyst Amy Yong summed up the issue succinctly, noting that “it’s a strange relationship because the record labels want Spotify to succeed, but not too much. It gives them too much leverage.”

The now-public Spotify has a market value of $32 billion and, as of its latest update to shareholders at the end of July, has reached 180 million users, with 83 million of those subscribing to the premium tier.