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Spotify just struck a crucial deal with Sony Music

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Akio Kon | Bloomberg | Getty Images

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Sony Music and Spotify have finally reached a licensing agreement. As first reported by Billboard and confirmed to The Verge by a source close to the situation, the deal will go into effect immediately. Sony Music, one of the biggest record companies in the world, owns RCA and Columbia and represents artists from Journey to Avril Lavigne to Future to The Chainsmokers.

While no details of the agreement have been made public, it’s likely that they’re similar to the terms of an agreement Spotify struck with Universal Music Group in April. That multi-year deal gave UMG artists the option to hold back new albums from Spotify’s free tier for two weeks after release and, in exchange, gave Spotify a slight break on revenue sharing as its subscriber base grows. (It hit 50 million paid subscribers in March, with Apple Music trailing at 27 million as of June.) At the time, Billboard reported that Spotify’s royalty payment would drop from 55 percent of its streaming revenue to 52.

Spotify is still pursuing a similar contract with Warner Music Group. These deals are crucial for the company; it needs to find a path toward profitability before a public offering sometime this year.

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The announcement of the Sony deal comes on the heels of several other significant changes for Spotify. Last month, infamous holdout Taylor Swift came back to the service, more or less ending the biggest debate over artist rights in the streaming age. Yesterday, Spotify announced new data-mining tools for brands that want to advertise to its free tier users, and in the last year it has experimented extensively with “Sponsored Songs” and other types of paid partnerships with major artists. Its curated playlists and algorithmic charts are a source of fascination for music industry watchers, who are increasingly intrigued by and wary of Spotify’s power to shape the culture around music.

The major moves make sense, as Spotify will be racing the clock to go public and avoid accelerated interest rates on the $1 billion debt it raised in March 2016. That financial decision was publicly acknowledged as part of an aggressive growth strategy for Spotify. This, at least, the company seems to have already followed through on. Not only has it hit 140 million total users, a mid-year Nielsen report shows a 62.4 percent increase in streaming over this time in 2016. When Spotify struck its UMG deal, chairman and CEO Lucian Grainge commented, “Working hand in hand with these digital services brought us the industry’s first real growth in nearly two decades.”

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