Their 2011 - 2013 deal leaked.
Key highlights:
1. Spotify paid Sony Music up to $42.5 million in advances
In section 4(a), Spotify agrees to pay a $25 million advance for the two years of the contract: $9 million the first year and $16 million the second, with a $17.5 million advance for the optional third year to Sony Music. The contract stipulates that the advance must be paid in installments every three months, but Spotify can recoup this money if it earns over that amount in the corresponding contract year.
According to a music industry source, labels routinely keep advances for themselves."A lot of the time, money that is paid outside of the direct usage doesn’t end up getting shared."
2. Sony’s Most Favored Nation clause keeps those advances rising
3. Sony Music was given up to $9 million in ad spots on Spotify which it could sell for profit
4. How does Sony Music make money from Spotify?
Section 10 shows how Sony Music separated its label fees into three distinct tiers — the ad-supported free tier, online day passes (which no longer exist), and Spotify’s premium service. In each of those segments, Sony Music can pull in a revenue share fee that is equal to 60 percent of Spotify’s monthly gross revenue multiplied by Sony Music’s percentage of overall streams. (So if Spotify earned $100 million in gross revenue, the labels would would get $60 million. If Sony Music made up 20 percent of the streams, it would take home $12 million.)
The contract has what’s known as the usage-based minimum and per subscriber minimum, covering the free and paid tiers, respectively. If the royalties from usage in any particular month are greater than what is paid out by the revenue share, Sony Music gets that amount instead.
5. STREAMING PAYOUTS ARE SUBJECT TO A VERY COMPLEX FORMULA
The premium tier’s per subscriber minimum takes Sony Music’s label usage percentage and multiplies it by the number of premium subscribers on Spotify, multiplied by $6.00. Once again, this model is used only if the total payout exceeds the revenue share.
6. How much do artists get paid?
Sony Music is likely getting considerable payouts from Spotify each year, but what it does when it gets that money — and how much of those payments actually make it down to the artists — is still unknown.
Some artists have clauses in their contracts to get a larger share of the streaming revenue, and some artists are still operating under CD-era contracts that only give them 15–20 percent of their streaming revenues.
In the wake of Swift’s departure from Spotify, many musicians rallied to her cause, vilifying streaming services that paid a fraction of a penny per play. But this contract makes it clear — the pay per stream rates aren’t the only issue. According to its financial disclosures, the majority of Spotify’s revenue, around 80 percent, has been flowing out the door to the rights holders. "You can’t squeeze blood from a stone," said David Pakman, the former CEO of eMusic and partner at Venrock. "Your beef can’t be with Spotify anymore." At least not with Spotify alone.
SOURCE: The Verge
