News July 25, 2017

Spotify close to licensing deal with third major Warner Music, door opens wider for IPO

Spotify close to licensing deal with third major Warner Music, door opens wider for IPO

Spotify, the world’s largest music streaming service, is close to finalising a licensing deal with Warner Music.

According to sources close to the talks, the Warner deal is similar to deals struck with Sony Music Entertainment and Universal Music Group.

That is, Spotify has asked for a more favourable royalty split (Warner currently has 55%) which can increase its profits.

A deal with the third and final major record company would put it in a stronger position to go ahead with its IPO, either later this year or early in 2018.

In return, Warner Music is said to have asked for some of its priority acts to launch only on its $9.99/month paid subscription tier rather than have them accessible to free users. 

That makes sense: the current number of 106.4 million paid subscribers is estimated to be 336 million by 2025.

As of this week, the issues of the royalty split (Warner is holding out for 52%, which is what Universal and Sony apparently agreed to, while Spotify is pushing for 50%) and which acts would go on the premium set-up are yet to be agreed on.

As with the other two majors, Warner is also strong-arming Spotigy to agree to an undertaking it will work on increasing its subscriber base.

It is also arguing that it should receive a guaranteed upfront payment, irrespective of how much Spotify increases subscription numbers.

Warner’s side of the negotiating table also wants protection for its revenue against currently unsigned acts which could reduce its royalties down the track.

But reports are suggesting that the deal could be finalised as early as September, as both parties are meeting daily.

Last month, Spotify claimed 140 million active users and 53 million of subscribers.

According to MIDiA Research, that means Spotify has 40% of global streaming subscribers.

It estimated Apple Music with 19% (with 28 million) and Amazon Prime Music with 12% (with 16 million).

Research also showed that Spotify has the second highest weekly active user penetration with 16.3%, following YouTube which has 25.1%.

Global streaming music revenue was $7.6 billion in 2016 in retail terms, with Warner Music claiming a 17.4% share last year. Universal’s share was 28.9%, Sony claimed 22.4% and independent labels the remaining 31.3%.

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