Unconventional public debut of music streaming service based on subscription success
by: Anna Nicolaou in New York
Spotify has reached 60m paying customers, say people familiar with the matter, as the pioneer of music streaming prepares for a public listing later this year.
The Swedish start-up has been rapidly adding paid subscribers — viewed by the music industry as the financial model of the future — bolstering its case with investors as the company looks to go public as soon as the fourth quarter. Spotify is planning to list shares directly on the New York Stock Exchange, according to people familiar with the plans. Through a “direct listing”, previously private stock would be traded on the public market, allowing investors to buy Spotify shares from current owners without raising new money.
Spotify would avoid some of the fees of a traditional initial public offering, although the company still plans to promote the unconventional listing through some version of a roadshow, these people said. Spotify has added more than 20m paid subscribers in the past year, outpacing Apple and fending off competition from large tech groups such as Amazon and Google in a cut-throat digital music battle.
The company also has more than 100m free customers, holding a strong lead in the streaming war. Spotify, valued at $8.5bn in a funding round in 2015, has been in tough negotiations with the big record labels to improve the challenging economics of music streaming.
The company last year increased revenues by 50 per cent to €2.9bn, but saw its net loss more than double as royalty and distribution fees also rose. Spotify has negotiated to pay lower royalty payments back to the music labels, which own the rights to its song catalogue. In exchange the company has agreed to restrict some album releases to its paid service for a few weeks — a significant source of contention between founder Daniel Ek and artists led by Taylor Swift.
After more than a year of tense negotiations, Spotify has reached licensing deals with Vivendi-owned Universal Music, and Sony Music. Recommended How ‘Cry Me a River’ became Julie London’s signature tune Womad 2017: triumphant Malians steal the show This leaves one hurdle: Warner Music, the world’s third-largest label and home to Ed Sheeran.
The companies are in active discussions and assuming the deal is struck in the coming months, Spotify would aim to go public in the fourth quarter, according to people familiar with the matter.
The music industry in recent years has moved towards a paid subscription model, as more people sign up to pay about $10 a month for access to 30m songs through services like Spotify. The rising popularity of music streaming has powered a turnround in music revenues, with global music sales last year growing at the fastest pace since 1997.