Spotify seals the deal with Warner Music, lays groundwork for future listing

SPOTIFY has closed a new global deal with Warner Music Group that will seal its long-term plans to go public on the New York Stock Exchange either late this year or early next year.

Warner Music Group was the last of the three biggest music labels in the world to jump onto the Spotify bandwagon, marking a major milestone for the online music streaming pioneer. Spotify now claims 140 million users, and this partnership with Warner, Sony and Universal could serve as the ballast the company needs to launch its bid to go public.

Good news for music lovers: @spotify and Warner Music Group have renewed their global partnership. Ole Obermann, Chief Digital Officer, WMG, commented on the renewed partnership with Spotify: “It’s taken us a while to get here, but it’s been worth it, as we’ve arrived at a balanced set of future-focused deal terms. Together with Spotify, we’ve found inventive ways to reinforce the value of music, create additional benefits for artists, and excite their fans all over the world. Even with the current pace of growth, there’s still so much potential for music subscription to reach new audiences and territories.”

A post shared by Warner Music (@warnermusic) on Aug 24, 2017 at 12:45pm PDT

“Our partnership with Warner Music Group will help grow the new music economy where millions of artists can instantly connect with fans, and millions of fans can instantly connect with artists,” Spotify’s chief content officer Stefan Blom said to the BBC.

As part of its deal with Warner, Spotify has agreed to certain restrictions, much as it did with Universal and Sony. Users of Spotify’s platform will not be able to access fresh releases for the first two weeks in the hopes of driving more users to purchase music rather than simply streaming.

“Artists can choose to release new albums on premium only for two weeks, offering subscribers an earlier chance to explore the complete creative work, while the singles are available across Spotify for all our listeners to enjoy,” said CEO and founder, Daniel Ek, on the company’s Universal deal back in April, according to the BBC.

SEE ALSO: Jay Z, Spotify, and exclusives: How music distribution is changing

The service has been controversial from the start because of the small revenues it offers artists and labels, symbolized by the old rift between Taylor Swift’s independent label and Spotify (which has since been resolved). Spotify’s business model has eaten into the profit margins of music publishers, and it has spent months in negotiations with Universal to convince them to take smaller profits in exchange for Spotify’s significant user base.

Currently, record companies take a 55 percent slice while publishers take an additional 10 to 12 percent. Universal and Spotify’s deal paved the way for these labels to regain some of the ground it lost to streaming services, and was a big step forward in the case Spotify will bring to Wall Street. Having big publishers such as Warner and Universal lends Spotify the sheen of credibility it needs to move beyond its current startup status.

“It’s taken us a while to get here, but it’s been worth it, as we’ve arrived at a balanced set of future-focused deal terms,” said Warner Music chief digital music officer Ole Obermann in an Instagram post on the company’s account.

“Together with Spotify, we’ve found inventive ways to reinforce the value of music, create additional benefits for artists, and excite their fans all over the world. Even with the current pace of growth, there’s still so much potential for music subscription to reach new audiences and territories.”

SEE ALSO: Spotify may soon seize the music crown, signaling tech’s increasing dominance

Music streaming is big business these days, having brought 11.4 percent growth in profits to the languishing music industry. Sixty million users have paid subscriptions, which counts for just under half of its entire user base – compare that against Apple Music’s 27 million subscribers.

Rumors of Spotify’s plans to list have been circulating for months now, but executives have reportedly waited to secure its major licensing deals in order to disperse any qualms about the service’s long-term viability. Some reports suggest Spotify will skip an initial public offering (IPO) entirely when it does eventually list, likely to ensure higher share values for existing, private investors.

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