Sony Music’s contract with Spotify leaks

Tech news website The Verge has obtained the 2011 licensing contract between Sony Music and Spotify.

While both Sony and Spotify have understandably declined to comment, the leak comes at a time when streaming services are in negotiations with labels to renew their contracts.

The Verge’s analysis is decidedly in depth and informative and you can read it in full here, but below are the most intriguing points uncovered by The Verge.

– Spotify paid Sony Music up to $42.5 million in advances

– Sony had a Most Favored Nation (MFN) clause to receive equal trade advantages as the most favouredlabel. Interestingly, it’s legal in the US but due to scrutiny on Universal Music’s acquisition of EMI Music in 2012, Universal had to stop using the clause in Europe for 10 years.

–Sony’s MFN clause meant its yearly advances were increased if another label negotiated a bigger advance in their contract with Spotify

– Sony Music was given $9 million in free ad spots on Spotify which it could sell for profit

– Spotify could keep up to 15% of all advertising revenues generated by third party ad sales

–This extra revenue from third party ad sales was not accounted for in Spotify’s gross revenue total

– Sony took its label fees from three segments: the ad-supported free tier, online day passes (which no longer exist), and Spotify’s premium service. The label could then pull in a revenue share fee that is equal to 60% of Spotify’s monthly gross revenue multiplied by Sony Music’s percentage of overall streams.The Verge explains: “If Spotify earned $100 million in gross revenue, the labels would would get $60 million. If Sony Music made up 20 percent of the streams, it would take home $12 million.”

– Spotify must pay $0.00225 per stream on its free tier but only if it hits its growth target. If it didn’t, it could pay $0.0025 per stream.