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Spotify and Warner Music Renew Licensing Deal

Spotify and Warner Music have renewed their licensing deal, helping to clear the way for the streaming giant to go public later this year or early in 2018. Warner was the last major label group with whom Spotify needed to secure a deal, having signed updated agreements with Universal and Sony Music, as well as the independent label collective Merlin, earlier this year.

In a brief announcement on Instagram, of all places, WMG chief digital officer Ole Obermann, Chief Digital Officer, WMG, commented on the renewed partnership with Spotify: “It’s taken us a while to get here, but it’s been worth it, as we’ve arrived at a balanced set of future-focused deal terms. Together with Spotify, we’ve found inventive ways to reinforce the value of music, create additional benefits for artists, and excite their fans all over the world. Even with the current pace of growth, there’s still so much potential for music subscription to reach new audiences and territories.”

In a statement, Spotify chief content officer Stefan Blom said: “Our partnership with Warner Music Group will help grow the new music economy where millions of artists can instantly connect with fans, and millions of fans can instantly connect with artists.”

A source close to the situation tells Variety that by holding out, the company obtained not just the two-week windowing option the other labels received, but a range of concessions from Spotify that it would not otherwise have gotten.

“We only agree to terms that are net-positive for our recording artists and songwriters. At the same time, we want to stimulate a healthy and competitive ecosystem,” WMG CEO Stephen Cooper said during a call announcing the company’s robust third-quarter earnings earlier this month. “Finding this balance has helped us sustain our momentum and grow the value of music.”

Spotify, the world’s largest streaming service, passed 140 million worldwide users as both its revenue and operating loss grew significantly in 2016, according to the company’s annual financial statement released in June. The company announced last month that it had passed 60 million paying subscribers. Its closest competitor in the streaming market, Apple Music, announced earlier this month that it had passed the 27-million subscriber mark.

The company also said it will pay record labels at least $2 billion over the next two years.

Spotify showed an operating loss of some 349 million Euros ($389 million) compared with a 236 million Euro loss the previous year.  Its gross profit was just $502 million. “This is explained by substantial investments that have been made during the year, mostly in product development, international expansion and a general increase in personnel,” directors Daniel Ek and Par Jorgen Parsson wrote in the filing.

It also cast a cautious eye on its future financial prospects. “Streaming music is an emerging market, which makes it difficult to evaluate our current and future prospects,” the filing continues. “We face strong competition for users, listening hours and advertiser spending, and we face competition from players with substantial resources at their disposal,” it reads, clearly referring to Apple, Google and Amazon. The filing It then speaks of its need for licenses from rights holders and recruiting and retaining qualified personnel, or else “our ability to successfully grow our business could be harmed.

“If we cannot maintain Spotify’s culture as we grow, we could lose the innovation, teamwork and focus that contribute crucially to our success.”

Still, Spotify remains the service to beat amid fierce competition from Apple Music, Amazon and YouTube, and to a lesser extent Tidal and Deezer. The major labels are said to own approximately 18 percent equity in Spotify, which to a large degree unites their prospects for success in the streaming market.

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