The music business is booming, for real. Buoyed by streaming, sales have been growing for the least three years, and music labels, which once looked DOA, are hot properties again.
But that doesn’t mean everyone in the music business is feeling good. Which is why Spotify, the world’s dominant music subscription service, is in a legal fight with Warner Music Group, one of the world’s largest music labels.
It’s not uncommon for the big music labels to have contentious negotiations with the big tech companies that stream their songs. But a full-blown lawsuit is something new.
The question is whether this is a one-off or if it’s going to become a feature of the industry. If it’s the latter, consumers who’ve become used to listening to whatever they want, whenever they want, may end up in a world where their favorite music service goes dark one day — or, just as worrisome, a world where songs they were used to listening to suddenly disappear overnight while giant companies haggle over payments.
A quick background: Right now, this is a fight between Spotify and Warner about how much Spotify should pay to do business in India, where it just launched.
Usually the way this works is that Spotify, or any service that wants to do business in a new country, puts together deals with Warner and a handful of other big music labels — who control 85 percent of the music Spotify streams — in advance.
In the old days, this could take a very long time (Spotify took years to get its deals set up for the US). But as streaming has become the default business model, things generally move fairly quickly now.
In India, however, Spotify was able to get deals with everyone but Warner. The two sides differ on their narratives but the gist is that this week Warner sued Spotify to try to stop it from launching in India. It failed, and Spotify officially went live in India on Wednesday.
The catch: Indian Spotify users can’t listen to Warner Music artists like Cardi B, Ed Sheeran or Bruno Mars. For now, at least, they can listen to artists like Katy Perry, who record for other labels, even if Warner owns those artists’ publishing rights — the rights to the songs’ underlying compositions.
That’s a confusing and unsatisfactory situation for everyone involved: for Spotify, which is offering a less-than-complete service; for Warner, which is being compelled by a court to give Spotify access to some of its stuff on terms it hasn’t negotiated; for artists and other music owners who aren’t getting paid; and of course to ordinary Indian music fans, who shouldn’t be expected to keep track of any of this.
There’s a decent chance this a one-time fight, because, as noted above, everyone involved loses.
In particular, both Spotify and Warner need to work together, even if they don’t love each other. Warner (like everyone else in the music business) has become dependent on the streaming revenue Spotify generates. Spotify can’t run a music service that doesn’t have Ed Sheeran or Cardi B or any of the other big-name artists that record for Warner — particularly when users can get those artists from legal alternatives like Apple Music or YouTube, or good old-fashioned piracy.
But the fight does underscore an ongoing tension between the labels and the big tech platforms. The big music labels, while they’ll never say so in public, are terrified that Spotify or Apple Music or whoever will end up cutting them out by doing direct deals with artists.
That scenario has yet to really play out (it’s worth noting that Taylor Swift, who has both the clout and the business savvy to run her own music label or work directly with an Apple, etc., cut a giant deal with Universal Music last fall) but it’s definitely on the labels’ minds. Particularly because Spotify says it does indeed want to do more direct deals with artists while swearing that it doesn’t want to replace labels.
The labels are also concerned that the amount of money Spotify makes from each subscriber has been dropping at a steady clip as Spotify offers promotions like deals for students or families with multiple users. In 2016, the average Spotify subscriber generated an average revenue of $7.06 per month. Last year it had dropped to $5.48.
Spotify says that’s not a problem, because those promotions are helping it keep its customers longer, which means that over the lifetime of their subscriptions, all of that evens out.
The labels are less sanguine, particularly because the developing markets that Spotify is targeting now are likely to put even more pressure on its revenue-per-user number. In India, for instance, Spotify is charging $1.65 a month for its premium service.
Which means it is possible to imagine a future where Warner, or another big label, plays even more hardball with Spotify next time their deal comes up in a territory like the US — Warner signed its last deal with Spotify in August 2017, which means it is likely up for renewal soon. And there is a precedent for it: Under a different ownership group, Warner pulled its music videos off of YouTube in 2008 over a licensing impasse; it came back to the world’s largest video service nine months later.
I think a more likely story is that we may see more of these fights in the handful of big territories that Spotify has yet to open up in, since it’s easier to fight about theoretical money than risk losing real money you’re making today. A good country to watch to see if that scenario develops: Russia.
This article originally appeared on Recode.net.