Aimed at pushing ahead with a U.S. stock market listing, Spotify agreed to a new licensing pact with Warner Music Inc. to be signed by September. This deal would grant Spotify a more favorable revenue split in return for making some new albums only accessible to paying subscribers for a certain period of time. The actual amount of agreed revenue to be split as well as size of the payment have yet to be discussed on.
Spotify has become one of the world’s most popular streaming music service but has struggled on its financial sustainability to strike music licensing contracts at cheaper rates. Basic features of Spotify are free and supported by advertising while paying subscribers enjoy unlimited listening as well as other premium features. Other competition such as Apple and Amazon can afford to subsidize their push into music by drawing on money they make in other businesses.
Spotify is valued at $13 billion and is aiming for a 50-50 revenue split, however, Warner Music demands that it retains at least 52% of the earnings while Spotify pays 55% to Warner. Warner also wants to receive a guaranteed upfront payment regardless of subscription growth and asks for protection against potential rise of unsigned artists who could reduce revenue share over time.