News July 12, 2017

Report: Spotify and Sony finally join forces, following Universal and Merlin licensing deals

Spotify has signed its second major label to a licensing deal, sources have told Billboard.

Sony Music Entertainment has now joined Universal Music and the independents’ rights organisation Merlin who finalised multi-year agreements with the world’s largest streaming service in 2017.

The deal also indicates the strongest position the the Swedish streaming service has been in for an IPO to date.

While no details are available for the Sony deal – which is yet to be officially announced – it is expected to be similar to the one it struck with Universal Music in April.

Previous arrangements have seen Spotify drop the revenue percentage to labels from 55% to 52% in return for the streamer actively building up its subscriber base.

Despite this decrease, Spotify has agreed to pay more than US$2 billion in minimum payments to record labels over the next two years.

The streaming service knows that in the long run, it will help make it money – which is exactly what Spotify needs at the moment.

While Spotify’s revenue last year grew by 50% to $3.3 billion, its profit was only $502 million. This is mostly put down to paying labels and artists, with Spotify posting an operating loss of $390 million last year and a net loss of $601 million.

Better royalty deals will ultimately increase its margins, which is a crucial step for Spotify as it heads towards an IPO either in late 2017 or early 2018. 

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