Spotify is on a collision course with the major record companies. Here’s why.

In little over 12 months’ time, Spotify will be out of contract with all three major record companies. Universal, Sony and Warner all inked 24-month deals with the streaming platform last spring/summer, MBW understands – with Warner the last to put pen to paper in August.

One of Spotify’s biggest victories during these 2017 negotiations centered on its gross margin.

All three majors agreed to reduce the average percentage of Spotify per-stream revenue they received in order to give the company a better chance of profitability. (Sources suggest this average percentage fell from 55% down towards 52% – although, certainly in the case of Universal, the reduction was granted on the basis that Spotify hit steep subscriber targets.)

Partly as a result of this reduction in payouts, Spotify’s gross margin improved dramatically in 2017 – up 7% year-on-year to 21% from 14% in 2016.

Source: www.musicbusinessworldwide.com

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