Spotify is reportedly engaged in a juggling act over its licensing deals with the major labels. According to The Wall Street Journal, the streaming service is running off short-term extensions of its agreements with all three of the major labels. It has allegedly been on the monthly renewals for nearly a year with at least one of them. As Spotify continues to move toward a potential IPO, getting all its ducks in a row for these complex legal questions is a must.
The issues with putting pen to ink on new licensing deals are the same ones that have caused tension between Spotify and labels in the past. Under the old arrangements, Spotify pays nearly 55% of its revenue to record labels and artists, along with about 15% paid to publishers and songwriters. The streaming company wants to reduce those shares spent, while the labels want their portion upped to as much as 58% of revenue from both the free and paid levels of Spotify’s platform.
Concerns around the two-tier service are also leverage points. Some label leaders would reportedly be willing to receive lower rates from Spotify if its freemium listeners had more restrictions, either on what songs they can access or how much time they can spend listening without payment. Spotify has long been resistant to limitations on its free option, claiming that they would make people leave the service entirely rather than scale up to paying customers.
Clearly the IPO is a cash grab right before the house of licensing cards collapses.