Music streaming company Spotify is close to agreeing a new licensing pact with Warner Music Inc., the last big music royalty deal it needs before pushing ahead with a US stock market listing, Reuters reports, citing four sources familiar with the situation.
The parties are positive a deal could be signed by September as major issues such as granting loss-making Spotify a more favorable revenue split in return for making some new albums accessible only to its paying subscribers for a defined period have already been agreed, the sources said.
However, the precise revenue split and the size of a potential guaranteed upfront payment to the label, home to artists including Ed Sheeran and Muse, have yet to be agreed, said two of the sources.
“The negotiations are at a crossroads,” said one of the sources, asking not to be named because the talks are private, adding discussions were taking place daily. “There are still a number of key points that remain to be agreed. If we manage to come to terms on these points, then it could lead to a very quick transaction. If not, any deal would remain at bay.”
Others saw a deal being done by late summer.
“Given the way talks are progressing, I would be surprised if we don’t have a deal in September,” said another source.
Sweden’s Spotify has grown in less than a decade into the world’s most popular streaming music service, but its financial sustainability hinges on its ability to strike music licensing contracts at less onerous royalty rates.
Basic features of Spotify are free and supported by advertising while paying subscribers enjoy unlimited listening and other premium features.
It faces mounting competition from far bigger internet players such as Apple and Amazon, which can afford to subsidize their push into music by drawing on money they make in other businesses.
The streaming firm, which was recently valued at US$13 billion, is pushing for a 50-50 revenue split but Warner Music is demanding it retains at least 52 percent of the royalties, in line with the other labels, according to the sources.
Under the terms of their current agreement, Spotify pays 55 percent of royalties to Warner.
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