The Return of the Fifty Dollar Handshake: Are Spotify’s Direct Artist Deals Really Less Than Meets the Eye–or Are We Looking in the Wrong Place?

If I gave two fucks – two fucks about streaming numbers
Would have put Lemonade up on Spotify
Fuck you, fuck you, you’re cool, fuck you, I’m out (Ah!)
I ain’t never seen a ceiling in my whole life, that’s word to Blue
Freestyling live, blueprint from my Jigga who never bribes

From Nice performed by The Carters

I guess Beyoncé & Jay-Z didn’t get the memo: Spotify is pumping up the earned media about its “direct artist deals” and also trying to pump up the bizarre behavior of its low volume stock price (and that story has yet to be told but is for another day).  But the question is why would managers go through the headaches if there wasn’t more to it–like playlist placement, for example.  Think about it–if Spotify said here’s some cash and we’ll give you a better split if anyone plays your tracks, is that as enticing a story as if they also said they’d guarantee placement on key playlists?

If a terrestrial radio station did that, my bet is that would be an…uh…a whatchamacallit.  A crime.  In most if not all states, undisclosed payments for placement would very likely violate consumer fraud statutes.  So we’re way past antitrust now, boys and girls.  Fifty state attorneys general knocking on your door can ruin your whole day.

Radio payola is often referred to as “the fifty dollar handshake”–when a radio promoter would slip a $50 bill to a DJ during a handshake.  If it’s illegal on terrestrial radio, why should it be legal online?  I’m a big believer in platform parity and a level playing field, don’t you know.  Also known as Moondog’s Revenge.

As the erudite David Oxenford noted a few years ago:

The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves…But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.

Let’s look at two questions:  Payment for playlist placement and potential infringement of song copyrights in a post-Music Modernization Act world.

Here’s a summary of financial terms of these deals from Billboard:

Over the past year, sources say, Spotify has been offering to pay a number of artist-management firms several-hundred-thousand-dollar advances in exchange for licensing their acts’ music directly to its streaming services. These deals cut out record labels and independent distributors, yielding more revenue per stream for Spotify, the musicians and their managers. Since Billboard reported the terms of some of these offers on June 6, Spotify’s stock has climbed more than 8 percent, to about $178 per share, as of its June 14 close….

Some acts say they are tempted to sign direct deals with Spotify not just for the advance fee and the higher potential payouts per stream, but for the prospect of better placement on top playlists — key real estate that some managers say has become increasingly difficult to score.

Now why would the “prospect of better placement” be a factor?  More likely the guarantee of “better” placement–in terms of both the playlist and the ranking on that playlist?  And this makes the stock market “cheer” as opposed to run for the exits?

Remember that Spotify is reportedly making deals with “artist management firms” to license directly to Spotify in a way that “cuts out record labels and independent distributors”.  That also tells you that it is unlikely that any of these artists are already signed to either a major or to a digital distributor or else there’d be no one to “cut out.” Of course if they aren’t signed then no one is actually being cut out, they’re just being denied an opportunity.

So that means that either the manager has already negotiated an out in their indie distribution deal that would allow them to take the $50 handshake…sorry, the Spotify money…or their participating artists don’t have a distribution deal yet.

The manager then shops the artist to a distributor who apparently has to take subject to the Spotify carve out.  This will not be attractive to a digitial distributor who works on a distribution fee basis, and may not even be attractive to a Tunecore that puts all the distribution risk on the artist through up front fees with no risk to Tunecore.  This is perhaps because the Tunecore fees appear to be based on amortizing collection fees against the pass through float and the float will be much lower without Spotify.  This is particularly true now that streaming has destroyed the download business.

Coming to digital distributors without Spotify in 2018 is probably like coming to them without iTunes in 2008–not attractive.  But as Billboard notes, the people who really get hosed by Spotify are–predictably–the indie labels.  This will be particularly true even if the manager was able to negotiate a buyout from the Spotify deal if the artist has an opportunity to sign to a label.

So once again, a tone-deaf Spotify steps in it because they just can’t leave well enough alone.   And they are very likely selling the deals to managers and artists based on payola-style playlist placement that benefits “their” artists on Spotify’s own playlists and the consumer is none the wiser.

I haven’t seen these agreements in the flesh, but I would also bet there is another clause in there–song clearance.  Spotify is very likely putting the song clearance onto the artists so that they get fully cleared recordings delivered to them.   Understandable given Spotify’s abysmal track record on screwing songwriters, but is it realistic?

Maybe.  As long as the artist has written one hundred percent of the songs recorded–which means no publishers, no covers, no outside writers and no samples–the artist can promise to deliver fully cleared recordings including the songs.

How likely is that to happen?

Now uncleared songwriters–before you call your lawyers, remember that after the Music Modernization Act you can’t sue Spotify for statutory damages and attorneys fees for copyright infringement if you didn’t already bring your case before January 1, 2018–even if you didn’t know you had a case.

So assuming MMA becomes law later this year, you’ll have to find something else to sue for, and good luck with those attorneys fees.  Thanks, Congress.

So maybe we all have our eyes on the wrong ball.  We expect that from Spotify, but the managers can do better.

And then there’s state law prosecutions for commercial bribery.  Helloooo state attorneys general.  Not to mention federal mail and wire fraud and, of course, RICO.  No safe harbor for Danny on the RICO.

How are those copyright infringement lawsuits looking now?