Former Sony And Spotify Contract Leaked; IMMF Releases Open Letter Regarding Leaked Deal

A former contract between Sony Music Entertainment and Spotify surfaced online showing a detailed payment system and deals between the two companies and this is the first time that such contract was released online as such agreements have been kept secret in the past.

The Verge was able to get a copy of the contract and reported that it was 42 pages long and that it was signed in January of 2011, just two months before Spotify was launched in the United States. The deal lasted until 2013 and it showed how much Spotify should pay in advances to the music label every year.

Spotify was asked to pay $25 million in advances for the two years that the deal lasted. Sony Music asked Spotify to pay these advances every three months and reassured the streaming service that it can still recover from the loss if it earns more in the years that the deal covers. It has been revealed by a source, identified as Rich Bengloff, the president of the American Association of Independent Music, that Sony Music keeps these advances to themselves and is not distributed to the artists that are under them.

One of the major details revealed in the former contract was the "Most Favored Nation" clause of Sony Music in the contract wherein the company said that the deal could be modified if any other music label has a better offer than Sony Music Entertainment. This means that if another label gets paid by Spotify with $2 million while Sony gets only $1.5 million, Spotify must pay Sony $500, 000 more.

Days after the contract was leaked online, the International Music Managers Forum (IFFM) released an open letter tackling the topic about record label and music publisher deals in the digital market. The letter was signed by copyright committee chair Kari Karjalainen, vice-chair Volker May and executive director Olivier Toth, and wrote: "We have long been calling for greater transparency concerning the accounting of royalties to artists from both record labels and music publishers."

They pointed out that they want artists to be paid fairly and have them get relevant usage data. Spotify and Sony Music Entertainment still has not commented on the reports regarding this matter.

Spotify has over 15 million paying users and 45 million more who stream without any fees. It has been one of the most targeted online streaming sites as it pays artists only 0.6-0.84 cent per stream.