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Spotify Negotiates Deals To Prepare To Go Public

Music-Giant Must Secure Long Term Deals To Be Attractive To Investors


Intellectual Property experts at law firm Irwin Mitchell say Spotify must tie down long term licence agreements with big labels to succeed in attracting investors after the music streaming service prepares for a potential initial public offering (IPO) next year, according to those in the industry.

The music streaming service may be open to an IPO due to financial struggles - with a reported $200 million net loss last year.  

The world’s biggest music streaming service, Spotify, is negotiating new deals that would make it more attractive to investors, as it currently operates on short-term contracts with major record labels, which prejudices its value as licensors could terminate the deals in future years, or demand much higher fees.

It’s reported that Spotify currently pays nearly 55% of revenue to record labels, and about 15% to music publishers and songwriters; however the label executives want Spotify to pay more. Apple Inc pays 58% for Apple Music subscribers who aren’t on free trials, according to media.

Other labels are to accept Spotify’s lower revenue rates on the promise of different rights, such as making certain music available only to Spotify’s paying subscribers and limiting free usage. Spotify’s current open policy is what has left iconic artists turning away after allowing a 40 million song catalogue to be available to free users as well as paid users. Adele and Gwen Stefani are known to have turned their backs on Spotify and withheld albums for this reason.  

However media reports that Spotify does not want to adopt a paid tier only policy for fear that it would drive free users to Alphabet Inc and YouTube. 

Other proposals to increase revenue to make Spotify more attractive to investors consist of; limiting the time of free usage, and increasing subscription costs - but most other streaming services such as Apple Music offer its streaming services at a similar price to Spotify, which would leave Spotify to be the first of its kind to raise pricing. 

Emma Yates, Intellectual Property expert at Irwin Mitchell, said:

Expert Opinion
“Rumours regarding Spotify’s initial public offering have been circulating for some time. The value of Spotify is a combination of its brand, technology, and its existing customer base but also, crucially, its right to access and stream content now, and in the future. As things stand with Spotify, there’s no guarantee of the latter.

“In order to look attractive to investors, it’s obviously trying to tie down long term license agreements with the big record companies, and if the IPO is to succeed, it will have to do that.

“At the moment, Spotify dominates paid streaming. However, its big competitors such as Apple Music and Amazon’s Prime Music are snapping at its heels.

“If Spotify can’t tie down its license deals and can’t attract the big names (for example, Frank Ocean’s new album, “Blonde” has just launched amid a lot of music industry hype, and is exclusive to Apple Music at the moment), it may struggle going forward.”

Emma Yates, Senior Associate

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