A new report reveals that Spotify is now asking record labels to pay them for promoting their artists. According to Bloomberg, the streaming platform has introduced a feature called Marquee that further connects artist and fans, but at what cost?
With Marquee, notifications are sent to users when participating artists release new music. Justin Bieber and Lil Wayne are among those already using the feature.
Bloomberg points out that Spotify is feeling pressure from investors to boost advertising sales in order to turn a profit. The majority of the streaming service's $6.1 billion in sales from 2019, for example, is lost due to paying royalties to record labels. And while Spotify currently has more than 270 million total users, the company generated just $678 million in ad revenue last year, which is less than what Twitter brings in each quarter.
Industry analyst at Midia Research, Mark Mulligan, insists Spotify "needs to diversify their revenue streams, they need to work out ways to drive higher operating margins.”
Spotify is banking on podcasts and what it is calling a “two-sided marketplace,” connecting artists and fans, to boost advertising. The latter involves record labels paying Spotify to promote artists by taking advantage of the aforementioned Marquee tool.
“Partners are seeing how powerful and effective it is,” said Beck Kloss, Spotify’s vice president of product and strategy for creators. “We’re seeing repeat purchases from early customers, and on average, more than a quarter of users who see a Marquee listen to the promoted music, making it one of the most effective digital marketing tools available.”
Independent labels, however, fear that a feature like Marquee ensures the companies and artists with the most money gain the most exposure.
“People aren’t very happy about it,” said Richard James Burgess, the head of A2IM who represents independent labels. “Some labels feel like they’d promote music to people they will reach anyways, and it just reduces the royalty you make.”
Regardless, record labels have long since paid for the best placement on shelves prior to the music industry going digital.
“If labels are putting out a new release, they are going to get behind that with playlist placement, with billboards, general advertising, marketing everywhere,” said industry consultant Vickie Nauman.
For more on Spotify's plan to increase its revenue, visit Bloomberg.