Spotify Officially Goes Public, Record Labels Left With Questions About The Future

As Spotify trading begins, labels fret over when to sell. 

"What message are we sending if we start dumping shares and tell everybody about it," asks one executive.
As Spotify shares begin trading on the New York Stock Exchange, the major record companies are wrestling with some thorny questions: when to sell their stock, and how to divvy up the proceeds among their artists and indie-label partners.

How soon to start selling is a puzzle for the three labels, which each took equity as part of their licensing deals that allowed Spotify to launch in the U.S. in 2011. With 71 million paying subscribers worldwide, Spotify revenue is now underpinning double-digit industry growth, despite the service losing money itself, and some label executives worry that selling early could signal a lack of confidence in Spotify's long-term prospects and impact share price and industry health when their sales become known. The stakes held by Universal Music Group and Warner Music Group are just about 4 percent and are now worth about $900 million; Sony's slightly larger 5.7 percent stake is worth nearly $1.3 billion, at a price of $125 a share.

On the other hand, if the majors don't sell early on and the price eventually declines, artists and label partners may second guess their investment decisions. "What if that happens and they accuse us of playing a dangerous game and start questioning if the label was gambling with their money," another major label executive wonders. "The majors might be better off with a clean situation and take the money off the table now, this way everything is above board and transparent."

An even trickier question is how to divide up the proceeds with artists and distributed labels once the stock sales are made. All three majors have said they will share earnings with their artists, and indie trade groups like A2IM and WIN have pressured the majors to say they would share profits with their indie distributed labels, so that those labels could share with their artists. Some major-label executives say their initial seeming reluctance to speak on the issue had more to do with how to divide the equity earnings among them.

Warner Music Group still hasn't commented on the issue, but Sony recently said in a statement that "Sony Music and The Orchard are committed to sharing with their artists and distributed labels any net gain they may realize from a sale of Sony Music's equity stake in Spotify. This is consistent with our previously announced policy of sharing breakage and equity proceeds from digital catalog licenses with our artists and distributed labels." UMG now says that "UMG's approach to sharing with artists any proceeds of an equity sale also applies to distributed artists and labels, consistent with the terms of their agreements with UMG."

But it's not clear how they will do it, especially since labels' rosters have changed considerably since each took its Spotify stake.

Among the questions on the table: How do you pay an artist who might have been generating a lot of streams when the label first got the shares, but isn't streaming at all nowadays? "How do you calculate that?" wonders one major-label executive. Do artists who signed after the label negotiated for and received shares of Spotify deserve a share of the proceeds? "What do you do with artists that have left the labels?" ask another label executive.

And what about the songwriters? Sources indicate that the publishing companies of the majors did not receive any equity at the time of the licensing negotiations, so writers who don't perform their own songs are unlikely to benefit.

Meanwhile, equally thorny questions also have to be resolved for distributed labels. Some indie labels may have negotiated for breakage -- their fair share of proceeds from equity as well as advances -- so they would get paid from a stock sale. But others might have brought that topic up only to negotiate it away in exchange for better distribution terms, and wouldn't be getting anything, sources say.

What about those labels that didn't negotiate anything on the Spotify issue, how will they be treated? Do Sony and UMG have to share with an indie label that was with them when they received shares but has since left? Do they have to share with labels who signed distribution deals well after the majors obtained their Spotify stakes?

"For both the artist and the distributed labels, there are so many prisms to look at this issue through, whatever you do you are setting yourself up for a lawsuit, if someone thinks they are being treated differently than another artist or label," says one major-label source. "It's a highly complicated situation. We might need to go out and find an independent third party who is seen is objective and fair to come up with the fairest way to proceed with how to share these funds."

While who should get what and how they should get is still up in the air, some sources suggested that the funds should basically be treated the same way streaming revenue is treated in each artist or label contract. So in the case of labels, they would get their usual cut of a stream for their pro rata share of Spotify streams.

Whether the majors decide to sell or not -- and some of this may depend on what happens with share price tomorrow and over the next few days - "the prize is much bigger than what the labels will get for selling their shares," says one industry observer. "Will there now be a healthy marketplace for music companies to tap the public equity markets?"

This story was originally posted to Billboard.

From the Web

More on Vibe

Getty Images

Boosie Badazz Defends Bill Cosby, Slams Harvey Weinstein In New Video

Boosie Badazz has never strayed away from making controversial comments, and his recent ones defending the incarcerated Bill Cosby are no different.

Mr. Wipe Me Down took to his Instagram page to discuss his beliefs that the man formerly known as “America’s Dad” should be a free man. Cosby is currently serving a three to 10-year sentence for three counts of aggravated indecent assault.

"Ay check this out, y'all better wake up this racist a** motherf**kin' world," Boosie says in the video. "This armadillo lookin' b**ch Harvey Weinstein been f**kin' people 100 days ago, and he can pay for all the sh*t he did, all the f**kin' rapes he done did, but Bill Cosby couldn't pay for his sh*t. The Jell-O man had the money. That show you it's a racist motherf**kin' world."

He continues by stating that Cosby’s crimes when he was a man of a much younger age, and the only reason he was jailed for the crimes was because of the color of his skin.

Harvey Weinstein recently reached a multi-million dollar provisional deal with his accusers to settle his sexual misconduct civil lawsuits. Many of Weinstein’s accusers came forward in mid-2017 to discuss that the disgraced Hollywood producer acted inappropriately with them, which was one of the catalysts for the start of the #MeToo movement.

Watch Boosie’s video below.


View this post on Instagram


#freebill #isaidit HOW HE GET TO PAY BUT NOT BILL #popapeelfreebill #crackheadasshoes

A post shared by Boosie BadAzz (@officialboosieig) on Jun 24, 2019 at 7:51pm PDT

Continue Reading

A Chicago Bartender Spat On Eric Trump And He Wasn't Sure Why

Eric Trump went to Chicago's Aviary cocktail bar Tuesday, (June 25) but instead of enjoying a drink, the 35-year-old said an employee spat on him.

Trump told Breitbart News the encounter was "disgusting" and was a bit taken back since he and his family promote "tolerance."

“It was purely a disgusting act by somebody who clearly has emotional problems,” Trump said. “For a party that preaches tolerance, this once again demonstrates they have very little civility. When somebody is sick enough to resort to spitting on someone, it just emphasizes a sickness and desperation and the fact that we’re winning.”

The woman was taken into custody by Secret Service but later released. The Chicago police department was on hand to deal with a "law enforcement matter.”

CPD was on scene and assisting the United States Secret Service with a law enforcement matter. Any and all inquiries regarding a federal protectee must be directed to the Secret Service.

— Anthony Guglielmi (@AJGuglielmi) June 26, 2019

Trump's Chicago incident comes as his father's administration is being accused of keeping men, women, and children in concentration camps at the U.S.- Mexican border.

Continue Reading

Dreamville To Release Film On 'Revenge Of The Dreamers 3' Sessions

The Dreamville recording sessions at the start of the year left everyone curious.

For one, J. Cole's label is known for working solely amongst its artists, but word quickly spread that the roster was opening its doors to collaborate with artists and producers. Buddy, Smino, and T-Minus were just a few of the individuals present at the "camp," and now five months since the sessions, fans will get to see what went down.

Dreamville will release its Revenge: A Dreamville Film that will give a behind-the-scenes glimpse at how artists and producers tied to different labels and different sounds, came together with Cole's imprint to create the upcoming Revenge of the Dreamers III album.

The highly-anticipated project is set for release this year, and two of its singles have already arrived. In fact, the recently released "Down Bad" featuring Cole, J.I.D., Bas, EARTHGANG and Young Nudy, serves as background music for the film's trailer.

"I had this idea," 34-year-old Cole said in the trailer. "Let's go somewhere, lock-in and invite a bunch of outside producers and artists to come f**k with us and just make this album."

T.I. and Dreamville's Ari Lennox are just a couple of the artists that appear in the trailer aside from Cole. The film is set for release Tuesday (July 2), and will hopefully be able to hold fans over until the release of the long-awaited follow up to Revenge of the Dreamers II.

Continue Reading

Top Stories