Spotify To Pony Up Billion$ To Labels

Spotify, which recently announced it has surpassed 140 million global monthly active users, also saw its revenue grew more than 50 percent, to $3.3 billion last year. In order to grow further, recent financial filings state Spotify has agreed to pay more than $2 billion in minimum payments to record labels over the next two years. That’s the word from Recode, which doesn’t specify where that large chunk of change is going. But folks familiar with Spotify confirm it’s referring to deals it recently inked with Universal Music Group, which has about a third of the market, and Merlin, which represents a large group of independent labels. That means Spotify will ultimately be on the hook for even more guaranteed payments once it re-signs Sony Music and Warner Music Group.

“Spotify figures all of those payments will be worth it, because terms of the new deals will give it better royalty rates, which will ultimately increase its margins — a crucial step as the company prepares to go public later this year or early next year,” the story says. “Most of Spotify’s revenue goes right back out the door to music rights owners, which is why the company only generated gross profit of $502 million in 2016.

As the article so eloquently states, “In the meantime, Spotify’s new numbers, filed to European regulators, remind us that the streaming music business remains a good way to lose money, at least for now. The company posted an operating loss of $390 million last year and a net loss, after accounting for finance charges related to its $1 billion debt deal last year, of $601 million. If Spotify succeeds as a public company, it will be because it convinces investors that it can eventually turn those losses around — both through better deals with music owners and, eventually, by figuring out how to sell things besides music.”