Spotify Finally Readies an IPO...That's Not an IPO

Spotify Finally Readies an IPO...That's Not an IPO

Spotify Finally Readies an IPO...That's Not an IPO

Today, Spotify struck a multi-year worldwide licensing deal with Universal Music Group to add some more stability to its part of the marketplace by creating a "flexible release policy". The popular (but controversial) music streaming service will be offering new releases from some artists that will be available initially only for Premium subscribers for the first two weeks before those on the free tier will be able to listen to it.

Under the agreement, the share of revenue Spotify pays labels in royalties, now thought to be 55 percent or slightly more, will instead in most circumstances range between that level and about 52 percent, depending on what subscription targets the company hits, according to sources with knowledge of the deal.

Music-streaming service Spotify AB is readying an initial public offering that is expected by year-end. But he became more willing to compromise - sources have hinted that Spotify general counsel Horacio Gutierrez played a key role - and the deal couldn't wait much longer. Overnight, though, attention has also turned to the implications for Spotify's IPO.

In 2015, Spotify was valued at $8.5 billion.

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The "narrative" required to fire up investors isn't just that Spotify is reducing its royalties burden and inching toward profitability; it's one of confidence that it can survive and prosper in the long-term, against competition from the deepest-pocketed tech giants.

Last year Bloomberg reported Spotify meant to go public in the second half of 2017.

As more Silicon Valley startups eschew the expense, uncertainty and scrutiny an IPO brings, companies are choosing to stay private longer and continue padding their bank accounts with venture dollars for as long as they can. And as of now, the service has only reached this "windowing" deal with Universal Music Group and not Sony, Warner or EMI. The two companies said that the new deal would "advance their partnership to ensure that streaming realises its full transformational potential for artists, labels and fans".

The royalties Spotify pays for recordings are separate from those that are paid to songwriters and music publishers, which amount to about 10 per cent. "Universal is the one that can call the shots, to some extent", says Mark Mulligan, an analyst at MIDiA Research, "and this is the next stage of how labels and -streaming services work together".

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