The Major Labels Are Trying to Sell Spotify for $10 Billion, Sources Say

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In the wake of the highly-successful acquisition of Beats by Apple, major labels Warner Music Group, Sony Music Entertainment, and Universal Music Group are now focusing on the next prize: a massive Spotify acquisition or liquidity event.  According to several sources inside and outside of the major label system who have agreed to speak with Digital Music News, the Beats sale is ‘simply small potatoes’ compared to the juicy prize that Spotify could represent, and labels are pulling as many strings as possible to make a ‘giant liquidation event’ happen.

A major factor in this push is equity, a lot of equity.

According to multiple sources, the major labels now carry a collective ownership share in Spotify of roughy 20%, a multiple of the percentage held in Beats.

The shift is a result of some re-engineering by the major labels on how they profit from streaming services.  In the older model, labels focused more on large, upfront guarantees in exchange for the rights to use their valuable catalogs.  Rhapsody, for example, has bitterly complained about that approach in the past, but according to a pair of sources close to those deals, that has shifted considerably over the past few years.  “[The big recording labels] decided they want equity more than payments, because there’s a market [for acquisition] now,” one source relayed.

“You’re talking about the difference between making millions right now, or billions in a few years.”

On that note, one source pointed to Spotify as a very, very juicy prize, with one target sale price pushing past $10 billion (you know, WhatsApp money).

One label attorney, who spoke on the condition of anonymity, pointed to massive telecommunications and mobile companies as targeted buyers.  “The Verizons, the NTT DoCoMos, the Oranges, that group,” the source noted.  “Spotify is a nice package for customers.”

Separately, sources also noted that Spotify’s investors are also getting more antsy for a sale, and pushing the agenda towards and initial public offering (IPO), acquisition, or other ‘liquidity event’.  But an IPO could represent a difficult bet: just recently, VC superstar Fred Wilson questioned whether the prodigious Wall Street wellspring has already ended, and whether companies like Pandora were the last to cash in.  “The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one,” Wilson blogged last month.

That may be better judged by Goldman Sachs, a massive Spotify investor and a shrewd Wall Street manipulator.  It’s unclear exactly how much Goldman has sunk into Spotify, though overall investment in the streaming service is roughly $540 million.


Written while listening to Paramore.

23 Responses

  1. TuneHunter

    ….investors are also getting more antsy for a sale,

    They better be antsy!
    Soon Mr. Ek will be out of $250M from last round and there is a lot of geography to cover with flashy offices.

    In any case they do have a chance – not only labels are loaded with clueless folks at the top.

    • FarePlay

      Paul, this story has plant all over it. Even your sign for “sale pending” I believe falsely creates an air that Spotify is in play.

      Of course the labels want the cash, after all they did mortgage their companies and the careers of the artists they supposedly represent. Now that they devalued their product literally overnight, If they don’t get their payoff they’re going to look pretty stupid.

      Let’s get real. Spotify’s losses escalate as the business scales. They’re probably better off with an IPO, than getting a serious, disciplined company to buy them. With Apple, At&T and Iovine, Beats will very quickly gain market share and fly by Spotify.

      But then who knows in this crazy, speculative business they call tech; sucking all the oxygen out of the room.

  2. Ironman

    How deliciously ironic that this valuation number is more or less equal to the losses from recorded music revenue from 1999 till now….

      • Anonymous

        Allowing for music districting ventures and avoiding logical and simple opportunities puts that number at $200B.

        Just holding tight to 1999 revenues would make after inflation $56 billions in 2013 – IFPI reported global income of $ just 15 billion for last year.
        I predict just $14 for 2014. All new streamers working ver hard to demolish music industry and Radio revenues.

  3. john

    so some telecom wolf is going to buy spotify? i think spotify needs to be owned by its current ownership to stay on point, a telecom is not going to continue to innovate the service properly i don’t think.

    • TuneHunter

      They only innovate in please of the semi-freelodaer or freeloader since ads just like on Pandora are almost nonexistent. Conversion to Pandora style and then to discovery moment monetization can justify $10B IPO or takeover.

      It’s possible in just 24 months! BUT HE HAS TO CHANGE HIS PROVEN BUSINESS MODEL.

        • TUNEHunter

          If we convert music and lyrics ID services to CASHIERS of the music industry Pandora will become next morning $5 billion dollar music store.
          Spotify in current proven business model will continue as ENDLESS FIRECRACKER burning away music!

  4. Anonymous

    :) Right.

    Wait till YouTube Music launches and buy it for $1m…

  5. Faza (TCM)

    I know I’d be looking to sell. Question is: where’s the chump that’ll buy ’em?

  6. Pat

    The cards are falling just as I had predicted the day the Beats sale was announced. Hopefully Spotify gets to the right hands, because it is the superior service, and there’s nothing more than I’d rather see than Apple’s decisions coming around to bite them in the arse. Not so much referring to the Beats acquisition, as that’s a savvy and smart business move, but them adjusting the headphone jack to abandon the traditional 1/8 jack, for no apparent reason (they say the tests prove that it’s a higher quality audio, however audio professionals say the difference is so minute that the human ear cannot detect it). And who really wants Beats to jack up the retail price of iPhones, just so your issued the new Apple standard of Beats headphones (overpriced, trendy crap-phones).

    • agraham999

      I don’t know what headphone jacks have to do with streaming music services, but I will address your point, because it is kinda silly. First of all, they are not abandoning the headphone jack, but allowing for headphones to access the thunderbolt jack. It is great from a developer and manufacturer standpoint, as well as users. Any headphone that used this jack, would still have the ability to work anywhere else with an adaptor, but this isn’t simply some audio improvement issue. Thunderbolt is digital and it carries data. That means new functionality for headphones and possibly superior technologies when it comes to ambient sound reduction, speech quality, etc.

      From a purely aesthetic perspective, this would also allow for a completely flat cable. Thinner…and smaller. Also, it would allow the headphones to access and draw power directly from the device.

      You know Apple/iTunes has done more for the music industry in both technology and sales in the past 10 years than just about any other company…so why the hate? Are you really that tied to a 1/8″ jack that’s been around for decades? Were you similarly upset when there was the switch from 1/4″ to 1/8″?

      • kirkmc

        It’s not Thunderbolt, it’s a Lightning connector; it’s very different. It can send digital data, just as the older 30-pin connector did. But Thunderbolt is a very different animal, and one we won’t see in portable devices for a long time.

        • agraham999

          Yes right…I misspoke…I meant Lightning…thanks. And yes the old connection could send digital data, but it wasn’t a practical plug for replacing an 1/8″ plug with. Swapping out the terminology, my point is the same…which is it is asinine to complain (in a post about Spotify being sold) about a switch from a 1/8″ round plug, to a flat/digital plug…and even if that’s the point you feel you really gotta make here, I guess it is fair to point out we also switched from the 1/4″ plug…and of course Apple killed off the floppy drive, the optical drive, is eliminating the mechanical hard drive with SSD/Flash, popularized that stupid all-in-one computer design, refused to allow us to use flash (instead of html5), and on and on…what arrogance. They deserve a bite in the arse as you say.

          Thanks to Apple I have all these floppy disks and I can use any of them.

          • Kirkmc

            I agree that the comment about the plug doesn’t belong in this post. Just clarifying.

      • pixel

        Improvements like conversion to 48kHz? Sorry but that “improvements” are good for idiots who will believe in every sh** that their god apple tell them… If you wanna want what I’m talking about, you should start to study all aspects of digital audio and physics of audio frequencies.
        Just don’t believe in every commercial spot

  7. hippydog

    One of my predictions is a mass consumer “non trust” in streaming after one of the bigger ones fail, it seems it may happen sooner then I thought..

  8. Willis

    If this report is true, there are a couple things to consider:

    1. Something is worth only what people are willing to pay.
    2. There are no buyers for this right now.

  9. stephen craig aristei

    Who ever said this above (or is it below??) were right, as soon as Spotify is out of it’s last round of funding, they will not be in a very good position to continue and the investments made by the companies previous investors will be deminished substantially….My fear is that in order for the initial investors (the major labels) to really come out on top, what kind of “consessions” will they have to lock into the deal to make it “sweet enough” to give them the “payday” they are looking for?…..What I am saying in plain english is “What kind of and how much of the artist’s rights and revenues from those rights are they going to give a way to the new buyer? After all, the “rights and revenues” are not theirs, but belong to the “artists” ! ! ! Kind of like when CBS and all the majors went to all the major selling artists on their label and asked them to take a “reduced royalty” on this new item they are marketing called the “Compact Disc” ! Didn’t they all ask us to take a 50% discount in royalties for those sales, “just for a while”, as they introduced the product to the public….And how long did it take us to get that royalty back up to where our contracts stated it should be?????

    I think it is important for every act, their mgmt, and their legal reps all stand firm and state that they will not allow the labels to unilaterally assign future rights and royalties to some business entity that was clearly a “conflict of interest” from the beginning, and that the labels need to be completely transparent in this sale !