Too big to fail? All the streaming giant's agreements with the majors have expired as it seeks to renegotiate at lower rates than Apple, along the way going public: "They need a certain narrative for Wall Street."
As Spotify begins to prepare for an IPO, which sources say the company is planning for late 2017, the relationship between the Swedish streaming giant and its trifecta of major-label frenemies (Universal Music Group, Sony Music Entertainment and Warner Music Group) is going through some drama.
Spotify's licensing contracts with the majors -- which typically have terms of two to three years -- have expired (Universal's in Spring 2015, Warner's at the end of last year), and, although it continues to offer their music under month-to-month deals that roll over, negotiations over new long-term agreements have been contentious. Spotify wants to pay less for music than it currently does, according to label insiders, and it already pays less than Apple Music -- a rate that's said to be about 55 percent of its revenue, as compared to Apple's 57.5 percent, although those numbers are simplifications of complex deals. (Streaming companies also pay publishers.) The service is now asking to pay less than 50 percent, according to two major-label sources, although others say it's not asking for that much of a reduction. It also wants to keep intact its ad-supported free tier, which promotes subscriptions but brings in relatively little revenue.
Finding compromise is more important than ever for both sides. Spotify needs the majors' vast catalogs and without long-term deals in place, it would be hard for the company to go public -- which it essentially has to do in order to satisfy the terms of a financing deal.