Spotify Relies On The Big Labels For Most Of Its Music. It Thinks That Will Change.

from recode

Spotify is 12 years old and has never been profitable.

Last year, it posted an operating loss of $461 million.

Today, as it goes public, it wants investors to value it at something above $20 billion.

In order to believe that’s a good idea, you have to believe that Spotify has figured out a way to improve its margins, which it says it will do.

And in order to believe that, you have to believe that Spotify has figured out how to change the way it works with its most crucial partners: The big music labels.

Spotify hasn’t said it will do that, for good reason. Spotify and the big music labels are in a co-dependent relationship that is both fraught and fruitful.

The big labels provide Spotify with the music that makes up 87 percent of the company’s streams. Spotify provides the labels with billions in revenue, which is starting to replace the vanishing money the labels used to make from CD sales and digital downloads.*

But Spotify’s plans for the future do involve changing that relationship in the long run.

The idea, according to people familiar with the company’s plans, isn’t to cut out the big music labels or compete directly with them by signing acts to recording deals.

Spotify does imagine, however, that over time, a growing tier of music acts, or small independent labels, won’t use the big labels for distribution. Instead they’ll work directly with the streaming service.

More here.

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