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Here’s How Spotify Plans To Disrupt The Music Industry Even Further: Licensing Artists Directly

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Spotify wants to directly license lesser-known artists’ music instead of cutting deals with labels. No matter how much it tries to hide it, that’s exactly what’s happening.  ( Spotify )

Streaming is the bane of the entire music industry, and Spotify, the leading name in the business, may render it close to irrelevant thanks to its new plan to directly license music from artists.

The company almost gets all of its music by striking deals with the world's biggest music labels, which have cut their own deals with artists. But Spotify wants the labels — the middlemen — partly out of the picture.

Billboard reports Spotify has started licensing some songs directly from musicians and their managers, compensating them with advances of "several hundred thousand dollars" just to acquire a collection of tracks.

Why Is Spotify Trying To Remove Labels From The Picture?

There is, however, a caveat to this setup: Spotify ends up paying artists lower royalty rates after giving them an initial check. On paper this sounds disadvantageous to artists, but in fact, the opposite is true. Artists make more money this way since they'll get to keep all the royalties instead of sharing it with their label.

Despite all this, Spotify makes clear that it doesn't intend to aggravate music labels. In fact, CEO Daniel Ek during last week's Code Conference talked at length about the role of labels in a streaming-dominated music world, and the value they provide.

No matter how much the company tries to hide it, however, it doesn't take a genius to figure out that it is, in fact, trying to compete with labels, as Recode notes. By approaching artists directly and asking them to let Spotify purchase their catalog in exchange of lower but complete royalty rates, it's disrupting age-old music industry traditions, in which musicians have to be signed on to a label before they can have productive careers.

With Spotify's new business model, that might not be the case anymore. Even now, some artists continue to reject major labels and choose to go independent instead. Grammy-winning musician Chance the Rapper to this day still isn't represented by a major label, yet his 2016 album Coloring Book snapped up a few Grammy trophies, including one for Best Rap Album.

Spotify And Licensing: How It'll Work

Under Spotify's licensing terms, the company isn't going to own the music it'll purchase. It's also not demanding exclusive distribution rights — any music it acquires can still be sold through Apple and Google or any competing service. Plus, it's only going after lesser-known acts, not giant stars who already have major label deals. Any struggling musician will no doubt find all these terms extremely attractive and reasonable.

Indeed, the music industry has been on the precipice of a radical change, and Spotify might just be the company that finally pushes it over. The problem is, Spotify still needs music labels, which explains why it's being really careful on how it talks about its new licensing schtick for artists.

What do you think will happen next? As always, feel free to speculate in the comments section below!

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