A new Spotify initiative makes the big record labels nervous

For decades, the path to stardom in the music industry has usually gone through a major record company.

Almost every artist today who reaches the top of the charts — whether Kanye or Adele, Beyoncé or Drake — has gotten there with help from one of the three conglomerates that control around 80 per cent of the business: Universal, Sony and Warner.

Now Spotify is experimenting with another approach, one that is making those labels nervous.

Over the last year, the 12-year-old company has quietly struck direct licensing deals with a small number of independent artists. The deals give those artists a way onto the streaming platform and a closer relationship to the company while bypassing the major labels altogether.

Although the deals are modest — with advance payments of tens or hundreds of thousands of dollars, according to several people involved — the big record companies see the Spotify initiative as a potential threat: A small step that, down the line, could reshape the music business.

Spotify, a Stockholm company that went public in April, has offered few details about its entry into the talent marketplace. It has not revealed which artists it has made deals with.

According to six people in the music industry who have been briefed on the recent deals, but were not authorised to discuss them publicly, Spotify has paid advances to management firms and other companies that represent artists who are not signed to a record label. 

Spotify is offering artists two advantages: A bigger financial cut and ownership of their recordings. The deals, furthermore, are not exclusive, leaving the artists free to license their songs to other streaming companies, like Apple Music and Amazon.

Spotify typically pays a record label around 52 per cent of the revenue generated by each stream, or play, of a given song. The label, in turn, pays the artist a royalty of anywhere from 15 per cent to, in some cases, 50 per cent of its cut.

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