Spotify has agreed another major licensing agreement to ease its way to IPO — this time with indie label representatives Merlin.
Merlin represents a bunch of smaller labels like Beggars Group, whose artists include Radiohead, and Domino Records, which looks after Arctic Monkeys.
Crucially, the deal means indie artists can release new albums to Spotify’s paying users first, if they want to. Free users would have access up to a fortnight later. Spotify came to a similar arrangement for its first licensing agreement with Universal, announced earlier this month.
According to Spotify’s press release, artists will also have “improved marketing and advertising opportunities, and enhanced access to data.”
Spotify CEO Daniel Ek said: “Indie music has been a huge part of our success since day one & I am super happy to say we have a new, multi-year deal with Merlin.”
Charles Caldas, Merlin’s CEO, added: “Merlin was a launch partner to Spotify back in 2008, and our partnership has thrived ever since.This new agreement lays the path to future sustainable growth for us both, and we look forward to remaining an integral part in the service’s continued success.”
Spotify’s getting its house in order for a rumoured IPO
The order in which Spotify is announcing its licensing deals is interesting. The company is trying to renegotiate its agreements with record labels ahead of a reported IPO, but has only signed two out of four main partners so far.
Universal was the first to sign a deal which, controversially, would allow artists to release albums to Spotify Premium first. The other two major labels are Sony and Warner, which have yet to announce deals.
Mark Mulligan, veteran analyst at Midia Resarch, told Business Insider at the time that Universal had a track record of being “the ice breaker on new deals,” citing its 2006 partnership with music downloads service SpiralFrog as an example. He said Universal’s Spotify deal would lead to a “domino effect” where the other labels would quickly jump on board.
A key point of negotiation, Mulligan said, would be reducing the amount of revenue Spotify has to pay rightsholders, even if it’s a tiny reduction. This allows it to go to potential investors and show that it still has control of its business, even though it’s hugely dependent on its label partners to provide its music catalogue.
In return, however, Spotify will have to demonstrate it can grow, Mulligan said. “That’s the only way this [streaming] model starts to evolve,” he said.