Spotify eyes Warner Music deal

Music streaming company Spotify is close to agreeing a new licensing pact with Warner Music, the last big music royalty deal it needs before pushing ahead with a US stock market listing, according to sources.

The parties are positive a deal could be signed by September as major issues such as granting loss-making Spotify a more favourable revenue split in return for making some new albums accessible only to its paying subscribers for a defined period have already been agreed.

However, the precise revenue split and the size of a potential guaranteed upfront payment to the label, home to artists including Ed Sheeran, have yet to be agreed.

“The negotiations are at a crossroads,” said one of the sources. Others saw a deal being done by late summer.

Sweden’s Spotify has grown in less than a decade into the world’s most popular streaming music service, but its financial sustainability hinges on its ability to strike music licensing contracts at less onerous royalty rates. Basic features of Spotify are free and supported by advertising while paying subscribers enjoy unlimited listening and other premium features.

It faces mounting competition from far bigger players such as Apple and Amazon, which can afford to subsidise their push into music by drawing on money they make in other businesses.

The streaming firm, which was recently valued at $13bn (€11.1bn), is pushing for a 50-50 revenue split but Warner Music is demanding it retains at least 52% of the royalties, in line with the other labels, according to the sources. Under the terms of their current agreement, Spotify pays 55% of royalties to Warner.

Earlier this year, the Swedish company struck a licensing deal with Vivendi’s Universal Music Group to pay the world’s largest label a lower royalty rate. This was recently followed by a similar agreement with Sony Music.

Spotify recorded revenues of €2.9bn for 2016, up 51% from 2015, according to company filings in Luxembourg in June.

Reuters


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