Can Spotify Survive the Impending Storm As It Prepares to Go Public?

For the three label groups, however, Spotify may be too big to fail. Streaming now accounts for more than half of the majors' digital revenue, and Spotify dominates the streaming market with more than 100 million monthly users. Apple Music, which hasn't been around as long, announced it had 17 million subscribers on Sept. 7. Both Amazon and Pandora are expected to enter the market this fall, and each has enough reach with consumers to become significant competitors relatively quickly.

Spotify is thought to have paid rights-holders $5 billion so far -- a figure that implies it's now paying out almost $2 billion a year.

Spotify's growth hasn't given it a clear path to profitability. The Stockholm-based startup, which in 2015 was valued at $8 billion, had 2 billion euros ($2.2 billion) of revenue that year -- up more than 80 percent from 2014 -- but also a net loss of 173.1 million euros ($206 million). It's under pressure to go public because in March it raised $1 billion in convertible debt, which can be exchanged to equity, under terms that grow less favorable as time passes.

"The convertible debt is essentially a ticking clock," says MIDiA Research analyst Mark Mulligan. "They have geared everything to a window and they need to have a certain narrative for Wall Street before that time."

Could Spotify go public -without new deals with the majors? "I don't think there's a definitive answer," says Mulligan, adding it could be easier for Spotify to do so with its current month-to-month arrangements than with new deals that would make it hard to build a profitable business. However, adds an industry insider: "The labels sort of have Spotify by the balls."

Both sides are maneuvering to get more negotiating leverage. Besides pointing to Spotify's approaching IPO, the majors are trying to encourage competition in the streaming market, so it doesn't end up controlled by one company the way Apple's iTunes Store dominated download sales. They helped boost Apple Music with exclusives, until Universal Music Group chairman/CEO Lucian Grainge said his company would no longer do so on a one-service, global level.

For Spotify's part, CEO Daniel Ek in June hired former Lady Gaga manager Troy Carter to strengthen its relationships within the industry. Also, the company is said to be softening its stance on offering music and content exclusively on the paid tier (a policy famously challenged by Taylor Swift who declined to offer her album 1989 on the service when it came out in 2014) as competing services have success with such windowing.

"The deals will get done," says Russ Crupnick, managing partner of MusicWatch, a consultancy that has worked for both Spotify and some of the majors. "It's in everyone's interest. The labels have a stake in Spotify, both in terms of equity and wanting it to succeed."

But Maverick's Adam Leber, whose management roster includes Miley Cyrus and Britney Spears, adds that it's important to note one key element: "As these juggernauts are negotiating, I hope they're not forgetting the most important group of all: the artists."

A version of this article was originally published in the Sept. 17 issue of Billboard.