Spotify‘s subsequent spherical of licensing negotiations with the main music corporations will probably be an fascinating second for the fashionable enterprise.
As MBW not too long ago reported, Spotify is on target to publish its first-ever annual working revenue this yr—and it’s not a small sum. Led by CEO Daniel Ek, Spotify is anticipating to document FY working earnings of USD $1.5 billion in 2024.
This can prospectively make any future request from Spotify to scale back the proportion of its income that it pays music rightsholders in royalties a harder ask.
We’re a good distance from 2017, when Spotify satisfied the recorded music enterprise to just accept a decrease royalty share of the streamer’s pro-rated internet income. (It’s understood that labels and distributors now share a 52% portion of Spotify’s pro-rated internet income; earlier than that 2017 deal, they acquired 55%.)
Explaining how that royalty-rate discount was potential, then-Spotify CFO, Barry McCarthy, mentioned in 2018 that the “labels had been performing in their very own self-interest to shore up Spotify’s economically-challenged margin construction”.
Six years on from that assertion, Spotify is now not “economically-challenged”… but it surely is nonetheless eager to enhance its margin.
Earlier this yr, the streamer started paying US songwriters/publishers through a contentious “bundled” mechanical royalty price; it’s anticipated to avoid wasting SPOT roughly $150 million in royalty prices yearly.
Stated “bundling” transfer has brought on widespread outcry within the music publishing neighborhood (to not point out a lawsuit from the MLC, which is in search of to reverse Spotify’s “bundling” royalty switch-up).
In the meantime, Spotify continues to push forward with its podcast and audiobooks companies, resulting in issues in music biz-land that these ‘discuss’ codecs might eat into listening share – and finally royalty payouts – on/from the service.
All of which is essential context for a brand new revelation: Spotify paid Warner Music Group, the third largest main music firm, roughly USD $1.16 billion in royalties within the 12 months to finish of September 2024, throughout recorded music and publishing.
We all know this because of knowledge contained inside WMG’s annual SEC filings, displaying that Spotify contributed 18% of Warner’s whole revenues (which stood at USD $6.426bn) in its newest fiscal yr.
YouTube was Warner’s second-largest companion, contributing 12% of its annual income, equal to $771 million, whereas Apple contributed 11%, equal to $707 million.
Collectively, Spotify, YouTube, and Apple contribute 41% of Warner Music Group’s revenues. (WMG particularly names these three corporations in its 10K submitting as they every account for over 10% of its annual revenues.)
Spotify paid Warner round $1.09 billion in royalties in FY 2023, in accordance with calculations primarily based on earlier SEC filings.
Curiously, Spotify’s whole fee to Warner Music Group within the latter firm’s newest fiscal yr is just barely bigger than the quantity absorbed through firm inventory cash-outs by Spotify execs/ex-execs in 2024 thus far.
As MBW reported earlier at this time (November 27), Spotify executives (and former executives), together with co-founders Daniel Ek and Martin Lorentzon, have collectively cashed out $1.10 billion in SPOT inventory within the calendar year-to-date.
Spotify’s 18% contribution to Warner Music Group’s revenues is roughly according to the streamer’s contribution to Common Music Group‘s equal determine.
Inside its annual fiscal report, UMG, like WMG, breaks out the contribution of any business companion that contributes greater than 10% of yearly revenues (throughout music publishing and recorded music).
UMG’s newest annual report, overlaying the calendar yr of 2023, reads: “In 2023, UMG had 3 prospects that every individually represented over 10% of whole revenues (3 prospects in 2022) and which represented whole revenues of 19%, 11% and 10% respectively…”
MBW assumes that the 19% contributor there’s Spotify, adopted by YouTube on 11%, and Apple on 10%.
Common Music Group’s whole revenues in 2023 stood at USD $12.01 billion (EUR €11.108 billion).
Ergo, MBW estimates that Spotify paid Common Music Group roughly USD $2.28 billion in 2023 (i.e. 19% of $12 billion).Music Enterprise Worldwide
