Spotify, Sony Music Reportedly Reached Licensing Agreement

Spotify and Sony Music Entertainment have reportedly entered a licensing deal after months of negotiations. This news arrives amid talks of the music streaming service planning to go public later this year.

The licensing agreement between Spotify and Sony Music was first reported by Billboard. Details of the deal have not been made public, but it’s presumed to be very close or perhaps similar to Spotify’s multi-year licensing agreement with Universal Music Group.

Spotify’s deal with UMG gives Spotify a break on the percentage of revenue it pays UMG in royalties as the streaming service’s subscriber base grows. The deal also allowed UMG artists to hold back their new albums from Spotify’s free tier for two weeks after release.

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Sony Music Entertainment owns RCA Records and Columbia Records. Artists under Sony Music include Britney Spears, The Chainsmokers, Alicia Keys, Martin Garix, John Legend, Kelly Clarkson and John Meyer.

With Spotify reaching licensing deals with Sony and Universal, the only major record label that’s left is Warner Music Group. It’s believed that Spotify and Warner Music are still in talks to reach the same sort of licensing agreement.

Spotify’s agreement with Universal and Sony is quite crucial for the company since it needs to be profitable once again. Last year, it reported a net loss of around $568 million on its $3.1 billion revenue.

Spotify is also being pressured to go public soon, since it has raised its debt last year to $1 billion. The longer the company waits to go public, that debt will get more expensive as time passes.

IBT reported back in April that Spotify is also considering to go public through direct listing. This would let the company put its shares into a public exchange, letting buyers and sellers trade based on supply and demand. This breaks away from traditional IPOs, which involves a process where prices are settled through meetings with investors.

READ: Spotify IPO Date: Company To Go Public Via Direct Listing Later This Year, Report Says

The problem with going public for Spotify is that it needs to prove that its music streaming service is being profitable. The music streaming giant has more than 140 million users worldwide, but only 50 million are paying subscribers. For comparison, Apple reported last month that Apple Music had 27 million paying subscribers.

If the company isn’t able to be profitable from paying users, it needs to make new ways to do so. This is why Spotify has been introducing a lot of major changes to its services.

In June, Taylor Swift finally allowed her catalogue to be available on Spotify, seemingly ending the debate surrounding music streaming royalties for artists. During the same month, it was also discovered that Spotify was experimenting with “Sponsored Songs.” This allows music labels to pay Spotify to have their songs appear on user’s playlists.

Spotify also recently integrated Eventbrite services to its app. This allows Eventbrite events to be promoted within the Spotify app, while also giving users quick access to purchase tickets. It seems as though Spotify also wants to show that it can be a platform to sell merchandise and concert tickets.

Just yesterday, Spotify also announced a new data-mining tool, which allows developers to see and analyze users’ listening habits, according to The Verge. This tool helps advertisers to better target ads for users who are subscribed to Spotify’s free tier.