11.12.2019 14:46:00

Why Spotify Has a Better Negotiating Position Than You May Think

Last year, 86% of the streams on Spotify (NYSE: SPOT) related to content licensed from the major music-rights holders. For that reason, many investors assume the labels dominate the discussions at the negotiating table over the royalties Spotify pays and other terms. There is a concern that its heavy dependence on the labels will prevent it from becoming much more profitable.But the truth is much more nuanced. Certainly, Spotify depends on the music labels for most of its content, but the labels depend on it for distribution and a large and growing portion of their recorded music revenue. As a result, the bargaining power is more balanced than many investors appreciate.Universal Music Group (UMG), owned by Vivendi SA (OTC: VIVHY); Warner Music Group, and Sony (NYSE: SNE) Music Entertainment represent 29.8%, 22.6%, and 18.1% of the global recorded music market, respectively, according to the International Federation of the Phonographic Industry. These "big three" -- plus the Music and Entertainment Rights Licensing Independent Network (Merlin), which represents the digital rights of independent labels -- dominate listening on Spotify.Continue reading
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