Industry Insights: Spotify is Throwing Around its Weight, and It’s Pretty Scary

A huge chunk of K-pop disappeared from Spotify due to a licensing dispute between the streaming platform and the Korean tech giant, Kakao. Spotify won.

Industry Insights explores the inner workings of the greater music industry, and what they mean for artists and fans alike.

Written by Wonjune Lee

Image courtesy of Kpopmap

On Feb. 28, billions of K-pop fans around the world woke up to find many of their favorite Spotify playlists purged, with everything from IU’s new album to music from ‘90s classics such as Fin.K.L. disappearing for apparently no reason.

News soon came out that this was the result of a licensing dispute between streaming giant Spotify and Kakao Entertainment (formerly Kakao M), a Korean record label. In February, Spotify had finally started offering its services in Korea, a market that the platform had strangely been neglecting. What was strange about Spotify’s entry into the Korean market was that Korean users’ accounts lacked access to the vast music library distributed by Kakao Entertainment, as the two failed to negotiate a licensing deal that would allow music to be streamed on Spotify. The dispute would be far less complicated if Kakao Entertainment was just another record label dissatisfied with Spotify’s (frankly inequitable) profit-sharing, wanting to get a better deal for itself and its artists. But Kakao Entertainment is more than just a label — it’s also the owner and operator of the biggest music streaming platform on the Korean peninsula, Melon. 

While the full details of the disagreement between the two music giants have not been made public, the reasonable suspicion held by some fans was that Kakao was wary of granting a competing platform access to its music, one which had experienced a tremendous success overseas with a huge level of funding to go with it. According to Kakao, Spotify knowingly escalated the situation, (Spotify, on its part, suggested that it was not at fault for the breakdown of negotiations) refusing to sign an extension to distributing Kakao’s music overseas. 

Image courtesy of Twitter

The Korean music market is one of the biggest in the world, at sixth largest according to the International Federation of the Phonographic Industry. However, it pales in comparison to the U.S. market (the biggest in the world), and the combination of other Asian and European markets where K-pop has gained popularity in recent years. And as with Korea’s other industries, the Korean music industry has focused on manufacturing exportable, culturally inoffensive products with worldwide appeal. 

BTS, the most successful K-pop act today, reportedly makes 2.5 times as much revenue overseas as it does in Korea, with its ‘safe’ and less explicit lyrics and performances allowing them to reach audiences even in heavily-censored places such as China and Iran. K-pop performers like BTS are carefully created to reach worldwide audiences and rely on large overseas profits that would be impossible to earn in Korea alone. A fact which Spotify, with its vast amounts of worldwide data on who listens to what would have been very aware of. 

In the end, Kakao folded under Spotify’s immense pressure. The company announced less than two weeks after the purge that it had reached an agreement with Spotify to distribute its music, both in Korean and international markets. While the dispute ended favorably for fans and artists, it definitely raises questions on the new power dynamic between record labels and music distributors.

Kakao has rightfully been criticized in the past by artists and fans alike for its seemingly  protectionist tactics at the expense of artists’ royalties and fans' access to the music they love, not-so-kosher record labels are hardly a new development. What is new is the near-worldwide domination of music distribution by a single entity: Spotify. Spotify is a clear leader in the streaming industry, with 36% of the world market share, more than the combined market share of the next two biggest platforms, Apple Music and Amazon. (Melon holds a non-negligible 2% market share as well.)

While this is not the first time that Spotify has utilized its market dominance to dictate how music is distributed, the incident shows the extent of its power, and how it can influence not just individual artists, but fight and win against a record label/tech giant halfway around the world from its headquarters in Stockholm. Spotify is far from a monopoly, but it has the power to dictate whose music is heard and how. Plenty has been made about Spotify’s questionable treatment and compensation of artists for their work, and as the streaming giant gains a firmer and firmer stronghold on the industry, one can only assume those issues will become more widespread.  Spotify’s dominance may not last forever, but the ease with which it bullied Kakao into submission  definitely raises questions on how it will affect the music experience for artists and fans alike in our generation.

This article was added to Industry Insights after its publication, upon the creation of the Industry Insights series.