Spotify finally strikes streaming deal with Universal: windowing for Premium, more data

The negotiations were tense, aggressive and lasted for two years. But a deal between Spotify and Universal Music was officially announced in a press release this morning.

The terms include two-week premium-tier exclusives for new albums (though singles will be available to free account holders as well) and greater access to data for labels.

Spotify has been trying to stitch up deals with the three major labels before going to its IPO. According to the New YorkPost’s initial report on the deal, the record companies know they have less of a negotiating clout post-IPO, and are pushing for certain kickbacks if Spotify is to get a better royalty rate.

So Universal has agreed to a lower share of Spotify royalties – currently 55% of Spotify’s revenues for recorded and an additional 13-15% for publishing rights, with the latter likely dropping to 10-12% – but has demanded two things in return.

One is that Spotify puts together a paid subscriber growth target.

The other is that Universal will decide, or at least have a greater say in, which of its new major releases will be kept off Spotify’s free tier.

“This partnership is built on a mutual love of music, creating value for artists and delivering for fans,” said Spotify chairman and CEO Daniel Ek. “We will be working together to help break new artists and connect new and established artists with a broadening universe of fans in ways that will wow them both.”

In his comment on the deal, Universal CEO and chairman Sir Lucian Grainge made reference to the revelations last week that streaming makes up more than half of the revenue in the US market(and nearly 40% in Australia).

“Working hand in hand with these digital servicesbrought us the industry’s first real growth in nearly two decades,” Grainge said. “Today, streaming represents the majority of the business. Our challenge is transforming that upturn into sustainable growth. In a market this dynamic, one evolving more rapidly than ever before, success requires creative and continual re-evaluation of how best to bring artists’ music to fans. At UMG, we’ve not only reimagined distribution models and technologies, but entire business models. The only constants must be great music and fair compensation for artists and creators. To that end, the long-term success of Spotify, and others like it, is essential to the ecosystem’s enduring health.”

Universal Music has been advised by the financial sector that its deal with Spotify will allow the streaming service to go to its IPO as early as late 2017 or early 2018. Further delay is only making Spotify’s debt and equity financing more expensive.

“We’ve argued that majors will have to leave more revenues to streaming platforms to sustain their business model,”Investment bank Exane-BNP/Paribas revealed.

“Incentivising the streaming platforms to convert free subs into paid subs is also paramount as we demonstrate in our significant upgrade report on Vivendi. The value of a paid sub is much higher than that of ad-funded subs.”

Talks with Sony Music are ongoing, the Post’s sources add.