The New York Post is reporting that that Spotify and Vivendi-backed UMG have found an agreement over music streaming distribution. According to the article, UMG has agreed to get a lower share of Spotify’s revenues – which currently stands at 55 per centof Spotify’s revenues for recorded – with two conditions:
Analysts suggest that more news might break over the deal. Investment bank Exane-BNP/Paribas says there is also the new tranche of Vivendi buyback which opens today April 4th (and goes on until April 25th , unless re-extended to June 30th and will target 25m shares – [and could] “possibly be used in a context of an exchange or in payment of an acquisition”).
The bank’s view is that the details of the share of Spotify’s revenues that UMG will receive is not yet known, nor is the paid subs growth target “but we’ve argued that majors will have to leave more revenues to streaming platforms to sustain their business model. Incentivising the streaming platforms to convert free subs into paid subs is also paramount as we demonstrate in our significant upgrade report on Vivendi. The value of a paid sub is much higher than that of ad-funded subs.”
The bank adds: “The deal is positive for both parties with music the key growth driver for Vivendi: It was previously reported by the FT that Spotify would like lower recorded rights (currently c55-57% of sales plus an additional c13-15% for publishing rights) as it struggles reaching profitability with a gross margin below 30%. Spotify is the largest single growth driver of majors but is at the mercy of the majors who control 70% of music rights. A deal such as this is required for Spotify to show a path to profitability and would help a potential IPO which we expect to happen ASAP e.g., late 17/18. The delay of an IPO is only making Spotify’s debt and equity financing is more expensive.