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

07 April 2017, 02:22 | Dawn Berry

Image source Apple

Image source Apple

But the young Swedish company sees other advantages, according to the Wall Street Journal.

On Tuesday, the company announced it had signed a multi-year global licence agreement with Universal Music Group which, according to industry analysts, is expected to reduce the amount of money paid to the record major for rights, and would thereby enable Spotify to generate its first profits.

"We know that not every album by every artist should be released the same way, and we've worked hard with UMG to develop a new, flexible release policy", stated Spotify CEO Daniel Ek.

Much has been made of Spotify's imminent IPO, but a new report suggests the streaming service is instead considering a different approach - through a direct listing on a United States stock exchange.

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Spotify had resisted windowing for a long time because it didn't want to reduce the attractiveness of its free, ad-supported tier. Essentially what this means is that Universal artists will be able to choose to keep their albums behind the Spotify Premium paywall for two weeks before they are released across the entire platform.

In exchange, Spotify is getting a concession of its own: a reduction in royalty rates. Spotify, which has raised more than $1 billion in equity, was last valued privately at $8.5 billion in June 2015. "Spotify needs to reduce its split [of revenue that goes to labels] in order to have an IPO, and we get that", says a label source, "but why would we do a deal that's meaningfully worse?" Normally, direct listings are used by small companies that don't expect much trading in their shares, or anticipate a big jump in their value.

Adding to this uncertainty was the fact that Spotify had been operating without long-term licensing agreements with the three major labels for over a year.

Going public isn't without risk for Spotify. "If they're scaling, artists are making more money and labels are making more money".

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