This Contract Between Sony and Spotify Sheds Light On How Streaming Actually Works

It’s complicated, but insightful.

May 19, 2015

The Verge obtained a copy of a contract between Spotify and Sony, allowing for a rare peek inside the mostly-secret agreements between two huge companies that have a massive impact on the course of popular music. The Verge's trudge through the contract's unfortunately unfriendly combination of legalese and math (is there a worse blend?) ends with this relatively simple main takeaway: Sony makes a huge amount of money from Spotify. Check out a few other interesting facts below.

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• To get access to Sony's catalog, Spotify will pay the label a $25 million advance over two years, with an option to pay $17.5 million more for a third year.

• The contract between Sony and Spotify includes something called a “Most Favored Nation clause,” which means that Sony “can call on an independent auditor once a year to determine whether Spotify has struck a more agreeable deal with any other labels.” And if, for example, another label negotiates a bigger advance from Spotify, Spotify must match that advance with Sony (adjusted for the relative market shares of the two labels).

• In one of the few clauses that seems friendly to Spotify, the company is allowed to hold on to 15 percent of ad sales made through 3rd parties. For reasons not explained, this money is not included in their gross revenue, which is divvied up between the company and the labels.

• Spotify is required to give Sony millions of dollars in ad space. The label is free to use this to promote their artists, or they can sell it at their on price for profit.

• Good luck trying to figure out how much Sony makes per stream! They might earn a percentage of Spotify’s revenue—adjusted for Sony artists' portion of total streams. But the contract also includes something called a “usage-based minimum,” so if streaming is down for whatever reason, alternate calculations ensure that Sony makes more money than it would from streaming alone.

This Contract Between Sony and Spotify Sheds Light On How Streaming Actually Works