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.
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 Sachs, Kleiner Perkins Caufield & Byers, Northzone 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.