Leaked Sony/Spotify Contract Reveals Details About Music Streaming Business

Entertainment news outlet The Verge obtained a contract recently between Sony and Spotify, the biggest player in the burgeoning streaming music industry. Signed back in January 2011, the contract sheds some light on how artists and publishers get paid by streaming services, including a staggering $25 million advance payment Spotify paid Sony for access to their catalog. That payment was only for the first two years of the contract, which had a Sony option for a third year for a guaranteed advance payment of $17.5 million. Those advance payments are fully recoupable, meaning that Spotify could get the money back if royalty payments exceed those amounts. The contract obtained by The Verge has expired, but subsequent contracts likely contain much of the same language.

The contract Verge uncovered also includes a so-called “most favored nation” clause, which allows Sony to make up the difference if Spotify were to sign a deal with another major label with lower advance payments. The agreement also breaks down how artists and publishers get paid, though the formulas are quite complex. Essentially, Spotify says it pays out 60 percent of all revenue to copyright holders, and the labels get a cut of that based on their proportion of total streams. However, once Spotify customers use the service a certain number of times, a different formula kicks in, paying between 2.25 cents and 2.5 cents per stream. The labels then hand over a portion to the artists, based on their contract.

One interesting clause of the Sony/Spotify contract states that Spotify reps will not introduce viruses, adware or other malware to their customers. It’s unclear why the clause was included. For the original Verge story about the contract, Click Here.