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Spotify Seeks to Fine-Tune Music Rights as It Gears Up for IPO

25 August 2016

From The Wall Street Journal:

As Spotify AB gears up for a potential initial public offering next year, the music-streaming service is missing one key component in its pitch to investors: rights to play the music in years to come, according to people familiar with the matter.

Spotify is now operating on short-term extensions of its old contracts with all three major record companies, having been on a month-to-month basis with at least one of the labels for nearly a year. It is negotiating new deals that would make its finances more attractive to investors.

Spotify, which saw its net loss increase to roughly $200 million last year even as revenue doubled to more than $2 billion, wants to pay a smaller share than the nearly 55% of its revenue that it currently pays to record labels and artists, according to people familiar with the matter.

It pays roughly an additional 15% to music publishers and songwriters.

But some major label executives want Spotify to pay them as much as 58% of revenue from both its free and paid tiers. That is what Apple Inc. pays for Apple Music subscribers who aren’t on free trials, people familiar with the matter said. Apple has more than 5 million users on free trials, they said.

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The licensing disagreement highlights the tricky relationship between Spotify and the major record labels, which all took minority stakes in the Swedish outfit as part of their initial licensing deals. As investors, the labels have a direct interest in seeing Spotify succeed, while they are also counting on subscription streaming in general to make up for a long decline in record sales. Paid services yield far more per user than ad-supported ones, and Spotify is the world’s biggest subscription service, with double the 15 million paying subscribers that one-year-old Apple Music has.

But the labels and Spotify don’t see eye to eye on some fundamental issues. In addition to what Spotify should pay for the music, record companies and their artists have also butted heads with Spotify over its practice of making its entire 40 million-song catalog available to both free and paid users at the same time. Pop star Taylor Swift, British singer Adele and rocker Gwen Stefani are among the artists that have withheld albums from Spotify because they didn’t want to make them available on the free tier, where users can listen to entire albums, playlists or artist catalogs in a random order they can’t control.

Link to the rest at The Wall Street Journal (Link may expire)

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