TAYLOR KLEIN OBALLA ’ S SAFWAN JAVED
labels now prefer the more legalistic term “ ancillary revenue sharing .”
Those ancillary revenues provide the labels a much lower royalty rate , but they are still taking money from an area where artists traditionally got all of it . “ What role does a label play in getting you live shows ? Arguably they help build your profile so obviously that plays into you getting those shows , so maybe that is justified ,” says Javed . “ That is sort of the lay of the land and I probably wouldn ’ t fight that one very hard because , yeah , I get that profit margins are low these days and those are other avenues where revenue is made and it is made partly because of the profile built up by the efforts of the label .”
This leads us to question whether artists could or should negotiate ancillary revenues from the labels , which in the streaming realm means the major labels ’ shares in Spotify . Combined , the three majors are believed to own somewhere between 15 and 20 per cent of Spotify as worked out in each of their original licensing contracts . While Spotify is losing close to $ 200 million a year , recent valuations peg its worth at around $ 8 billion , which means a hefty pay day for the labels if they sell their shares . Should they do so , are artists entitled to any of that money ?
“ There is nothing in any artist ’ s contract I have ever seen about if the label kept an equity share in a distribution arm , the artist gets to participate in the revenue derived from that . No , that doesn ’ t exist ,” says Javed . He ’ s right , there is no contractual obligation for the labels to share proceeds from the future sale of
Spotify shares with artists . That said , the heads of both Warner and Sony have publically stated they would do so . Universal has not made any public comment one way or the other on whether it plans to share its portion of a future Spotify sale with its artists .
But whether the major labels do or don ’ t share those future earnings with artists is only part of the problematic arrangement .
“ Here is another avenue for the label to potentially make money and the way for them to do that is to drive up the valuation of , let ’ s say , Spotify , or whatever the streaming service is . The way you do that is by getting more and more memberships , or at least that is one of the ways you do it ,” notes Javed . “ In that case , what is going to attract membership ? Keeping your prices low is one good way to attract membership , but that means you ’ re also getting less revenue from the streams , right ? So , in a way , you ’ re sacrificing what your streaming revenue is to drive up the valuation of the company because when it sells , you ’ re going to have X number of shares in it and that is going to be worth way more than whatever difference you potentially could ’ ve made and you don ’ t have to share that with artists .”
So where does this all leave us ? Hopefully with a better sense of where the money is going . Exact numbers in many cases remain a mystery , but we do know publishers and songwriters in Canada are getting just under 13 per cent of gross revenue and the streaming services are keeping around 30 per cent , give or take . The remainder is going to the labels , with the indies typically splitting it 50 / 50 with their artists ( minus the amount taken by their major label distributor ), and the majors are keeping around 85 per cent plus recoupables . And then there is the messy business of Spotify ’ s ownership . So to return to the original question , where is the money going and is it fairly divided ? Again , it depends who you ask , if you can ask them .
Michael Raine is the Assistant Editor of Canadian Musician .
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