Breaking: Google Acquiring Spotify In $4.2 Billion Deal…

Google is now planning to acquire Spotify in a deal valued at roughly $4.2 billion in cash and equity, with a formal announcement slated for this week.  The acquisition, first reported by the Wall Street Journal early this morning, would create a clear frontrunner in the music subscription space and give Google a massive edge over competitors like Apple.

It may also play a critical role in the upcoming launch of ‘YouTube Music,’ a forthcoming, subscription-focused update from Google.  Other Google music-related properties are struggling, while Spotify is already established in the space.  Just ahead of the acquisition, Spotify reached its six millionth paying subscriber.

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The deal, expected to be finalized today (April 1st) with customary closing details coming later, would also validate the very massive and risky investments made on Spotify, particularly by Goldman SachsKleiner Perkins Caufield & ByersNorthzone Ventures, and billionaires like Sean Parker and Li Ka-shing.  That group is estimated to have bet north of $200 million on Spotify, with a resulting valuation of about $3 billion.  All for a company that lacked any profit and carried questionable financials, but now seems to make perfect sense.

Spotify CEO Daniel Ek is now likely to be praised as one of tech’s most important entrepreneurs and visionaries.  “I’m thrilled by this acquisition and the belief that Google has placed in us,” Ek offered in a statement.  “While we’ve operated as healthy competitors to this point, I think we always considered joining together to help build the future of music consumption and a place for artists to grow.”

Board member and investor Sean Parker, one of the original creators behind Napster, expressed a sense of relief and validation.  “Napster was really an experiment that gave me a glimpse of what music would be in the future,” Parker said.  “Now, fifteen years later, Google is helping us fulfill that vision in the best, most powerful way possible.”

Also gaining big are the major labels, who each own a piece of Spotify and stand to gain enormously from the acquisition.  But one insider noted that Goldman Sachs was unhappy with the arrangement, simply because a far larger amount of money could have been earned through a Wall Street initial public offering (IPO).  “They’re only making a fraction of what they could have off of an IPO,” the source relayed.

And what happens next?  According to dealmakers on the Google side, it remains unclear exactly what happens to Spotify after the acquisition is complete.  One source pointed to “an expensive acqui-hire,” while noting that Google may be more interested in the underlying technology, not the consumer-facing app.  As noted above, Google is busily transforming its massive music platform, YouTube, into a smoother experience for fans.  That contains far more content than Spotify, though that content is far less organized, far less portable, and generally more difficult to access.

 

We’ll update as more aspects of the deal emerge.

30 Responses

  1. Seriously?

    You reported this without even hinting at the possibility that this is an April Fool’s day hoax?
    Or was it your (DMN’s) idea?
    I’m really debating cutting all ties with this publication.

    Reply
  2. ep

    i almost bought it… but really not that far-fetched. other than the valuation…

    Reply
  3. Spotify

    Spotify needs to generate a lot more than $1,000,000,000 USD a year to be relevant.
    It doesn’t matter that Spotify is now the second biggest music store in the world (Itunes is #1). It needs to make $3 billion a year to be relevant.

    Reply
    • onezero

      Agreed. It’s more unlikely than “For Immediate Release: GOOG opens at 805.7!” but about as funny.

      Reply
  4. TUNE HUNTER

    So the question is when greedy Google will start true and honest to artists and industry monetization of music! They are greedy! So they have to have something in mind.
    I hope they do or we will end up with 20 billion global music industry.
    A/ Spotify = Napster in potable and intant form with all whistles and options and no charge or almost no charge to user.
    60 million paying Spotifayers ($7.50 avg.) will generate just 5.4 billion in annual sales, say 7.5 billion with ads. If they get to that level there will be no music industry.
    B/ Youtube with Vevo suported by Shazam, Soundhound, Gracenote and lyric ID guys for total convenience to all freeloaders will dry the rest of the music.
    Let me know where to find the dope they are using!

    Reply
  5. musician

    wonderful what stealing the work of others can accomplish for you in this country. The american way i see.

    Reply
  6. Tone

    Whoa. Definitely read quick snippets of this article and left thinking it was true…for a whole week! I raised my eyebrow at Google paying a $1.2 billion premium (according to GS recent valuation), but just shrugged it off. Then today I started thinking why haven’t I heard this from anyone or anywhere else, and immediately thought April Fools.
    Actually thought of mentioning the acquisition in a follow-up email to a recent interview I had at a digital media company. Thank god I didn’t. Personally, I think it should be a little clearer than a WSJ link (that some people might not have the time to read at the moment) that it’s April Fools, but that’s just me.

    Reply

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