What We Know And Don't Know About Spotify's AI Deals With Labels
Is this the end of the beginning for AI and music?
Spotify didn’t bury the lede exactly in last week’s announcement of its new deals to “partner” with the major music labels to develop new AI-based products. After some preliminary throat clearing it got around to mentioning “Sony", ”Universal” and “Warner” in the nut graf, making it newsworthy, along with “Merlin” and “Believe.” But it didn’t exactly fill in a lot of details, either.
Things we can conclude, glean, or infer from the blog post:
These are upfront licensing deals, meaning contracts are in place ahead of product development. Per Sony Music chairman Rob Stringer, “This is an acknowledgement that direct licensing in advance of launching new products is the only appropriate way to build them and demonstrates how a properly functioning market benefits everyone in the ecosystem and fuels innovation.”
The deals are described as “partnerships,” rather than set-it-and-forget-it licensing deals, suggesting the labels will have some role in designing/developing whatever products come out of the agreements.
The “partnerships” are with “record labels, distributors, and music publishers,” according to Spotify, so they cover more than just master rights.
While Spotify says its has already begun “building a state-of-the-art generative AI research lab and product team focused on developing technologies,” the announcement the aim is to create “new opportunities” and “wholly new revenue streams for rightsholders, artists, and songwriters.” So it doesn’t sound like these are just basic payment-for-use in training deals.
The labels seem to have gotten over their umbrage at Spotify’s subscription bundles sufficiently to engage in other substantive negotiations and say nice things about the company in their canned quotes.
Things we don’t yet know or can’t be sure about:
What will the ownership structure be of any products that result from the partnerships? Will Spotify own them? The labels? A joint venture? Same question as to any generated output that results.
In a similar vein, do the deals include any kind of exclusivity, either with respect to other streaming services or to the products being developed? That is, if Apple or Amazon, or for that matter Deezer, were to want to enter similar partnerships with the labels would they be able to do so, and on the same terms? Likewise, will the products that come out of the partnerships be exclusive to Spotify, or could the labels make them available to other streamers?
If the deals are in some respects exclusive, how much coordination went on between and among the labels, and did it have the blessing or the Justice Department or European competition agencies?
For that matter, are their territorial limits on the implementation of whatever products result?
Unclear if it’s related, but Spotify has secured a patent for a method and system for generating personalized mashups of multiple songs, apparently relying at least in part on AI technology (h/t Music Business Worldwide). A Spotify spokes tells MBW it’s unrelated to last week’s announcement, but make of it what you will.
According to Spotify, “artists and rightsholders will choose if and how to participate” in the partnerships. Will that be opt-in, or opt-out for artists.
The labels say the deals are “direct” licenses. What happens in cases of recordings owned by the the label partnerships of songs written in whole or in party by composers signed to publishers not included in the deals? Will the publishing CMOs have any role?
Why did Spotify’s shares hit a one-month low on the day of the announcement? Did Daniel Ek anticipate that, and is that why he’d been selling big chunks of his holdings in the weeks leading up to it? These deals didn’t happen overnight.
When will the first lawsuit be filed over the deals, and by whom?
It is obviously early days. The product development process apparently is just getting under way. So some of these blanks, presumably, will be filled in over time. The answers may also vary according to the products that get developed, depending on who was involved and what they contributed.
But the deals may be a sign that we have reached the end of the beginning (to borrow Winston Churchill’s famous formulation in a far, far more consequential context) of the music industry’s collision with AI technology.