According to reports from Guggenheim analyst, Michael Morris artists and labels could see a decrease in the revenue being paid out to them over the coming renegotiation period of label contracts with Spotify.
Morris said in his report that “Importantly, we see Spotify as well positioned for continued gross margin improvement as the company renegotiates its record label agreements in 2019,” he wrote. “Specifically, we forecast that Spotify is positioned to reduce rights payments as a percentage of revenue by 2.0% in 2019 as it pursues long-term gross margins of 30 to 35% (gross margin has been 24.5% over the past four quarters).”
This drop in payouts could see Spotify increase its gross margins by the latter part of 2019.
Morris also sees subscriber growth as strong going into 2019.
“Spotify seeks to deliver maximum listening enjoyment to consumers through convenience, curation, breadth of content, and payment options (your time or money),” Morris noted. “The value proposition to the artist is to strengthen the listener relationship through distribution, data access, and compensation.”
“Spotify’s focus on creating a virtuous cycle for consumers and artists and using technology to create curated experiences evokes a Netflix-like promise of significant global penetration potential.”