Analysis

Spotify’s pitch to UMG: ‘We’ll pay you $1bn over the next two years’


Tags:

spotify-ek

That’s a paraphrase, not a direct quote, but it’s very much the gist of an internal email leaked to the New York Post, as Spotify and Universal Music continue to play out their licensing renegotiations in public.

The streaming music service expects to pay Universal, the No. 1 record label in the world, $1 billion over the next two years to cover music royalties, ad revenue and subscription fees, according to Spotify projections of its growth rate and Universal’s market share,” claims the report.

It goes on to claim that Spotify believes it will account for 11% of UMG’s recorded music revenues between April 2015 and March 2016, but that this will rise to 16% the following year.

The leaked email comes at a time when Universal Music boss Lucian Grainge is at the forefront of a new drive for Spotify and other on-demand streaming services with free tiers to do more to convert those non-paying users into subscribers.

The Post claims that “Universal brass were surprised at Spotify’s $1 billion claim — the real value of Spotify’s payments are much lower, sources said” – although neither company has commented on the record.

The $1bn figure does not appear to include any windfall from an IPO or sale of Spotify, given Universal’s equity stake in the company.

In 2009, documents indicated that UMG had a 4.8% stake in Spotify, which based on the $7bn valuation being thrown around earlier this year, could be worth upwards of $330m IF the stake hasn’t been diluted through past funding rounds.

(A big if.)

The seemingly well-briefed Post also suggests that Spotify CEO Daniel Ek “fears Universal Music is working closely with former employee Jimmy Iovine, now at Apple, to put Spotify under intense pressure”.

This being the music industry, expect plenty more leaks from both camps in the run-up to the renewal of Spotify’s licensing deal with UMG.

Stuart Dredge

Read More: Analysis News
Leave a Reply

(All fields required)