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Spotify close to new deal with Warner, though key elements still to be agreed

By | Published on Tuesday 25 July 2017


Spotify is close to agreeing a new multi-year licensing deal with Warner Music everybody! And we’re not just saying that based on one source familiar with the situation who has spoken to Reuters. Nor two sources familiar with the situation who have spoken to Reuters. Not even three sources familiar with the situation who have spoken to Reuters. No, four sources my friend, four sources!

The precise revenue share arrangement the mini-major will get and the cash advance Spotify will pay are still to be agreed, those sources say, which are kind of the core of the deal, but whatever. It is thought that the basic principle of the new arrangement – ie that Warner will take a slight cut in revenue share in return for data and marketing kickbacks, growth commitments and a little bit of windowing – are pretty much agreed.

That’s the general gist of all the new deals done between the labels and the streaming firm. Spotify, of course, is eager to list on Wall Street, and to do so needs both multi-year licensing agreements in place with the rights owners but also confirmation that its original business plan of keeping at least 30% of its income is still in pace, despite the music publishers, among others, having pushed for a bigger slice of the pie in recent years.

One of the sources told Reuters: “The negotiations are at a crossroads. There are still a number of key points that remain to be agreed. 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 already has new deals in place with Universal Music and Sony Music, and indie-label repping Merlin, so the Warner deal – which should be signed by September, it’s said – is the last big one on the recordings side. Though deal making will continue with other distributors and the music publishing sector.

It’s thought that Warner is pushing for commitments on guaranteed advances that are not tied to subscriber growth, and that it might also be looking for a commitment that Spotify won’t fill its playlists with cheap library music, following all that recent chatter about the streaming firm putting tracks from production music outfit Epidemic onto certain chill out and ambient playlists.

As discussed in this recent CMU Podcast, it seems unlikely that Spotify is actually currently playlisting Epidemic tracks for commercial reasons. Even though music from the company will undoubtedly be cheaper to stream – not least because Epidemic is able to offer all the recording and publishing rights in one package, which is highly unusual, even for production music. But the tracks currently being selected do seem to fill a genuine editorial hole.

That said, the labels having established a streaming business model where some tracks are more expensive to deliver than others, commercial considerations may well ultimately become a factor in the playlist curation process on the streaming platforms. As it does in any other curation situation where variable pricing applies, like sync for example.

Though, by the next time the labels are negotiating multi-year deals with the market leading streaming company, a publicly-listed market-dominating profit-seeking Spotify will likely be looking for every new revenue stream it can get. Don’t be surprised if that means key playlist slots going to the highest bidder – a digital version of music retailers charging for prime shelf space – by which point getting all hot and bothered about a bit of library music appearing on a chill-out playlist will seem rather quaint.