Popular music streaming company Spotify is close to a new licensing deal with Warner Music. Both parties believe that a deal could be signed by September.
According to Reuters, this is the last big music royalty deal Spotify needs to make before having an IPO. Some aspects of the deal have already been settled, such as granting Spotify a more favorable revenue split in return for making some new releases only available to paying subscribers.
However, the exact revenue split has not been agreed upon yet.
“The negotiations are at a crossroads,” said one of the sources. “There are still a number of key points that remain to be agreed upon. If we manage to come to terms on these points, then it could lead to a very quick transaction. If not, any deal would remain at bay.
Spotify is pushing for a more favorable revenue split than its current payment of 55% of royalties to Warner. While Spotify is pushing for a 50-50 revenue split, Warner wants at least 52% to match other labels like Universal Music Group and Sony Music (NYSE:SNE) .
The Sweden-based company wants a better revenue split because it faces intense competition from other music streaming companies. Spotify, Apple (NASDAQ:AAPL) , and Amazon.com (NASDAQ:AMZN) all offer music streaming for $9.99 per month. But Apple and Amazon can afford to earn less in royalties by making larger profits in other areas of their businesses.
Spotify does currently hold a larger share of the market, which could help push the deal into its favor. As of June, Spotify had 53 million paying subscribers, or 40% of streaming music subscribers, compared to Apple’s 19% and Amazon’s 12%. Spotify has more than 140 million active listeners when free listeners are taken into account.
If this deal goes through, Spotify hopes to go public by the end of the year or in the beginning of 2018.
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