Music streaming service Spotify has reportedly reached a licensing deal with Sony Music Entertainment that brings it a big step closer to what could be one of the year's biggest stock market listings.
Sony, whose top artists include Beyoncé, Adele and Shakira, has agreed to reduce the royalties that Spotify must pay it, in return for a commitment from the Swedish firm to restrict new albums to paying subscribers for two weeks before making them available to free users, the Financial Times reported.
The deal removes a major source of legal and commercial uncertainty as the streaming company gears up for an initial public offering, expected on the New York Stock Exchange later this year or in early 2018. Favourable royalty terms are crucial for Spotify to attain profitability and to make it a viable long-term holding for investors.
Reuters reports that Spotify was valued at $13 billion earlier this year, but whether it can sustain that valuation is far from clear, given the recent problems of companies such as Snapchat owner Snap Inc (snap) and meal kit delivery firm Blue Apron (aprn). Like many startups, Spotify is still not profitable. It had an operating loss of 349 million euros ($400 million) last year, despite a 50% rise in revenue to 2.93 billion euros.
Spotify had already tied up a new licensing deal with Universal Media Group, part of the French group Vivendi, in April. It also secured a new deal with Merlin, a digital rights agency that represents thousands of independent labels and is known as the "virtual fourth major." That leaves Warner Music, part of Time Warner, as the last big label that Spotify still needs to bring on board. Talks with Warner are still ongoing, according to Billboard. Between them, the big three labels and Merlin account for around 80% of global music label revenue.
A Spotify spokesman told Fortune the company couldn't comment on the FT report.