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Spotify Has A Big Wrinkle to Iron Out Before It Goes Public

Spotify CEO Daniel Ek Makes AnnouncementSpotify CEO Daniel Ek Makes Announcement
Daniel Ek, CEO of SpotifyPhotograph by Bloomberg via Getty Images

Spotify is reportedly working toward becoming a publicly traded company sometime next year. But first, the streaming music service has a few wrinkles to iron out, namely long-term streaming rights for its vast catalog of music.

Spotify is trying to hammer out new deals with the music industry’s biggest record companies to hold on to the rights to play their artists’ music for the foreseeable future, according to anonymous sources cited by the Wall Street Journal. Spotify currently has short-term deals with the labels after agreeing to extend contracts from the eight-year-old Swedish streaming service’s early days in the industry. According to the Journal, Spotify is operating on a month-to-month basis with at least one major label.

One obstacle in Spotify’s negotiations is over the share of revenue the service has to pass on record companies—some of which also own minority stakes in Spotify—and their musical acts. While Spotify’s annual revenue ticked up by 80% last year to $2.2 billion, the company paid out $1.8 billion in licensing fees, mainly to labels and music publishers, with roughly 55% of its revenue reportedly going to labels such as Universal Music Group, Sony Music Entertainment (SNE), and Warner Music Group.

The Journal notes that Spotify would like to cut down on the fees it pays to record labels after its net losses swelled to about $200 million last year despite the revenue uptick. Record companies, on the other hand, want to hike Spotify’s fees to as much as 58% of revenue, though Spotify could gain some leverage by offering labels the opportunity to make some music available only to the streaming service’s 30 million paid subscribers. (In the past, though, Spotify has said it thinks long-term exclusives are bad for both artists and fans.)

Fortune reached out to Spotify for comment and will update this article with any response.


Spotify also has more than 70 million free users from whom the service generates ad-based revenue. Fortune noted earlier this year that the service is looking to grow that revenue through an expanded targeted network that will focus more on “programmatic” ads, where companies use software to buy and sell ads automatically based on algorithms.

The reasoning behind all of these actions—shoring up streaming rights, decreasing losses, etc.—point to Spotify potentially planning an initial public offering for sometime next year, as has been reported. As Bloomberg pointed out last month, Spotify’s recent deal to raise $1 billion in convertible debt valued the company at roughly $8 billion and put additional pressure on the streaming service to go public. But first Spotify needs to make itself more attractive to investors, especially with an IPO market that has not been friendly to tech companies recently.