UMG's Deal With Spotify: How Grainge and Ek (Finally) Got It Done

by Linda Olson April 7, 2017, 2:24
UMG's Deal With Spotify: How Grainge and Ek (Finally) Got It Done

The company will also no longer raise new money from investors.

The streaming music company, which has been valued by investors at more than US$8 billion (S$11 billion), is by far the largest service of its kind, with 50 million paying subscribers and at least another 50 million who listen to music on Spotify's free tier, which has advertising. And in a twist, the music streaming service may not go down the traditional IPO route.

The rumor mill is spinning that Spotify wants to go public in the near future, although the streaming giant has yet to demonstrate it can survive as a profitable company.

Spotify, founded more than a decade ago by Daniel Ek and Martin Lorentzon, raised $1 billion in debt two years ago, the same year its revenue surpassed $2 billion.

"Spotify needs to create a strong narrative for Wall Street if it is going to IPO successfully". A direct listing would help Spotify avoid some of the fees and hassle of an IPO, and wouldn't have to dilute the existing shares of the company.

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The downside to a direct listing is that bankers can convince their institutional investor clients to buy into an initial public offering, thereby lending stability to a given stock. The effort, if successful, could be a model for other start-ups wary of an IPO.

LOS ANGELES• Spotify struck a long-term licensing deal for songs from Vivendi's Universal Music Group, the world's biggest record label, agreeing to limit free play on some new albums. MergerMarket reported on Spotify's consideration of a direct offering earlier.

Locking in a deal with UMG gives Spotify more leverage with other labels since it doesn't need all of those deals to go public.

It will see Spotify register shares on a stock exchange and become a publicly listed company without raising new cash, according to the Wall Street Journal. And as of now, the service has only reached this "windowing" deal with Universal Music Group and not Sony, Warner or EMI.

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