Spotify’s Billion-Dollar IPO Is Back on Track (Thanks to a Juicy UMG Deal)

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Spotify’s licensing agreement with Universal Music Group is just what the Wall Street doctor ordered.  But can the trick be duplicated with Sony Music and Warner?

Several weeks ago, some pretty interesting details started leaking to the Financial Times.  What insiders said was this: Spotify needed longer-term, lower-royalty deals with the major labels if they wanted to go public on Wall Street.

And here’s the catch: Spotify would likely have to agree to limit some content to premium subscribers in order to secure those lowered rates. (Insiders first spoke with Digital Music News in August 2015 about this deal, but hey.)

Now, Spotify has secured a major music label in their quest to finally launch their IPO.  And they’re getting the rates they needed.

The Swedish streamer locked down a multi-year with Universal Music Group (UMG).  BAM.  But the deal calls for Spotify to restrict certain Universal albums to premium-only subscribers.

In a statement, Spotify CEO Daniel Ek added the critical details.

“Starting today, Universal artists can choose to release new albums on premium only for two weeks, offering subscribers an earlier chance to explore the complete creative work, while the singles are available across Spotify for all our listeners to enjoy.”

Both companies had spent months in negotiation talks.

The multi-year deal gives Spotify a break on UMG royalty payments, depending on certain subscriber metrics.  In turn, UMG will restrict new albums to Spotify’s 50 million paid subscribers.  Free users will still be able to listen to designated singles, however.

By restricting new albums on the service, UMG hopes the service will attract more paid subscriptions.  Speaking on the restriction, Daniel Ek said,

“This partnership is built on a mutual love of music, creating value for artists and delivering for fans.  We will be working together to help break new artists and connect new and established artists with a broadening universe of fans in ways that will wow them both. We know that not every album by every artist should be released the same way, and we’ve worked hard with UMG to develop a new, flexible release policy.”

As Spotify remains in negotiation contracts with Sony and Warner, the UMG deal will serve as a template.  If Spotify manages to secure deals with other labels, it will have conquered a major Wall Street hurdle: high licensing costs.  Which also means that Spotify will probably be ready to launch their IPO in 2018.

See how that works?

Sir Lucian Grange, UMG CEO and Chairman, also issued a statement on the deal.

“At UMG, we’ve not only reimagined distribution models and technologies, but entire business models.  The only constants must be great music and fair compensation for artists and creators.  To that end, the long-term success of Spotify, and others like it, is essential to the ecosystem’s enduring health.  I congratulate Daniel on Spotify’s continued growth and innovation, and I look forward to working together with him and his team to develop exciting new ways to connect artists and fans around the world.”

4 Responses

  1. The REAL Remi Swierczek

    Remi, where are you?! Praise be to Spotify.

  2. Paul Resnikoff

    One thing I’m trying to figure out: are these 2 week windows also Spotify exclusives? So, can Apple Music also get the albums (or any other paid platform)?

    That’s a critical aspect in my opinion.

    • Shlomo the great

      Agreed. I also think the digital biz dec departments will feel like Heros but the reality is there are other apps and platforms they should be doing deals with. Looks like they’re going to hand their hat on Spotify and shit on the rest. Kinda like the A&R who signs one artist in 15 years buts still manages to keep a senior level job

  3. Will Buckley

    It’s pretty clear the incentive to spend time and money on recording has been getting hammered for a long time. While people may love live music, if they can afford tickets, the recorded music they listen to is what gets them in the seats.

    I think what the labels fail to understand is that they have a lot more power in these negotiations than they think. Instead of limiting new releases to a paid subscribers they should actually charge subscribers an additional fee to get access to those releases. And instead of streaming it should be a highly discounted download, say $5.00.

    This is a scenario that works better for everyone. Artists > Label > Spotify. It might actually cut down Spotify’s streaming payouts to the point of being profitable.