Spotify ‘offering direct licensing’

The publication says the direct deal allows Spotify to pay artists at a lower rate compared to what they would earn if they were signed to major record labels. Artists will earn 50% on each stream, which is 4% less than the rate paid to labels. In reality, Billboard says, artists and managers earn only about 20% to 50% of the labels' share, depending on their rates.

The added advantage of the reported deal will let artists keep their masters. Independent artists are also able to license their music to other streaming services such as iTunes and Deezer without having to share a portion of the revenue with Spotify.

But the publication said Spotify could not be called a publisher because of its prior agreements with record labels; if Spotify were to begin publishing music it would constitute conflict of interest with major record labels. Currently, Spotify is not allowed to purchase catalogues or recordings. It is also restricted from signing major artists.

One of Billboard's anonymous sources said Spotify signing unknown acts would not be a breach of contract with some labels.

What differentiates Spotify from record labels is that it does not buy exclusive content. It also does not own the rights of musical works. The Billboard sources said Spotify had urged artists not to say they were 'signed' to the streaming service.

At this point the methods that Spotify will emply to promote independent artists are not fully known. It is likely, however, that the company will use its in-house curated playlists to market the artists it has invested in.

"Under the terms of some of the deals, management firms can receive several hundred thousand dollars as an advance fee for agreeing to license a certain number of tracks by their independent acts directly to Spotify," Billboard said.

It's unknown how Spotify will select artists to be part of the new direct licensing structure. It's possible that the service will monitor trending artists and approach them with the deal if it sees a potential return on investment.