In a surprising turn of events, Spotify has announced its decision to pull out of Uruguay following the enactment of a new copyright law that mandates compensation for both featured and non-featured performers by streaming services. While this compensation model is standard in countries like Spain, it marks a significant departure from the prevailing norm in the United States and many other nations.
The massive streaming service claims that its business model is unsustainable because Uruguay’s modified national copyright legislation requires them to pay twice for the same song. In contrast to passive streaming services like Pandora, which use SoundExchange to pay royalties, Spotify argues that it would be costly to add payments for both featured and non-featured artists.
“The government of Uruguay recently passed a budget bill that includes dramatic changes to the way music works in the country (the Rendición de Cuentas). Spotify already pays nearly 70% of every dollar it generates from music to the record labels and publishers that represent and pay artists and songwriters and has contributed more than $40B to date.
The changes in this bill could force Spotify to pay twice for the same songs and unless the government makes it clear that record labels and publishers to whom we pay ~70% should bear the responsibility for these costs, this will make our business of connecting artists and fans unsustainable, Spotify lamented.”
In contrast to what Spotify says, detractors contend that the behemoth of streaming services is underpaying for the value of artists’ brands and abusing them to advertise its service while amassing market capitalization that is insufficiently distributed to musicians – especially those who aren’t featured. This action, which benefits Spotify management at the expense of artists, is perceived as part of the company’s inability to confront the market-centric licensing model.
Spotify has provided a schedule for its exit from Uruguay. According to the streaming service, after December, premium members won’t get any bills; instead, the service will switch to a free account, which will remain active until February 1st. After December 28, there won’t be any more subscriptions available, and on February 1, Spotify will no longer be available in Uruguay.
With this development, the Uruguayan music streaming market is in a state of flux while Spotify works through these difficulties, which begs the question of how to strike a balance between paying artists fairly and preserving a viable streaming service business model.
