New Universal Music Group Deal Moves Spotify Closer to IPO

All the hype about the resurgence of vinyl and cassettes aside, the majority of revenues in the music industry now come from streaming. Since the early days of Napster, iOS app developers have heard the American music industry discussed as if it were on death’s doorstep, but streaming revenues have given it something of a shot in the arm. In 2016, the Recording Industry Association of America reported an 11.4% jump in retail revenues, much of it derived from increasingly popular streaming services like Spotify, Apple Music, and TIDAL. Record companies naturally want to extend this spike of good fortune into a sustainable and evolving revenue stream. As for the streaming services, they are just looking to be able to turn a profit after sinking so much capital in infrastructure, marketing, and, of course, those pesky licensing fees.

Universal Music Group and Spotify made strides toward their respective business goals with their new licensing agreement announced yesterday. After two years of negotiations and month-to-month licenses, the world’s largest record company and the world’s largest streaming service have landed on a stable, multi-year contract. There’s bad news for app developers still using Spotify’s free service: Universal will have the option to release new albums behind a paywall for two weeks, racking up the higher royalties from the premium tier before allowing non-paying users to listen. In return, the deal gives Spotify a reduction in royalty rates.

But the bigger win for Spotify is that it is now one step closer to going public. Even though it’s one the biggest startups in Europe, valued at $8 billion with at least 100 million listeners, having a significant chunk of its music catalog up in the air made it a risky investment. Now that it has reached an agreement with Universal, its catalog is more secure. Negotiations with Sony and Warner, the other major labels, are up next, and most expect that they will cut similar deals, thus locking down another huge section of Spotify’s streaming library. London app developers are now keen to see if and how Spotify can turn a profit.