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What Could Affect Spotify Valuation before Its IPO Launch?

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Spotify’s negotiations with record companies

According to a Wall Street Journal report from August 23, Spotify plans to launch an IPO (initial public offer) next year. However, the report states that the company is currently on a slippery slope when it comes to negotiations with record companies over music streaming and revenue sharing agreements.

According to the report, Spotify currently pays around 55% of its revenue to record companies and artists and “an additional 15% to music publishers and songwriters.” But the report states that the different stakeholders in the music-streaming industry including record labels want Spotify to pay them 58% of its revenues.

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Early this year, Spotify had received financing of “$1 billion in convertible debt” from investors, including “TPG, hedge fund Dragoneer Investment Group and clients of Goldman Sachs Group.” According to a Wall Street Journal report from early this year, Spotify had a valuation of $8.5 billion in June 2015.

However, its current negotiations with record companies over revenue sharing and music streaming rights could affect its valuation.

About Spotify

Although Apple Music (AAPL) is still behind the music streaming market leader Spotify with 15 million subscribers, it’s growing at a rapid rate. Spotify has 30 million paid subscribers, but it took more than ten years to reach that level, while Apple Music is just one year old. Spotify recently announced that it now has a total of 100 million subscribers, but with only 30 million paid subscribers, it’s still not able to break even. Additionally, Spotify is also facing growing competition from Pandora (P). A few weeks back, Spotify announced that it will now use the cloud offering from Google (GOOG) to run its music-streaming service. This was an important win for Google, which is competing for a share of the cloud service space against Amazon (AMZN) and Microsoft (MSFT). Amazon and Microsoft currently lead the cloud service market with shares of 31% and 9%, respectively, according to a report from Synergy Research Group.
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