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Spotify looks to squeeze record labels over streaming rights ahead of IPO

Coming off a year of heavy net losses, Spotify, the world's largest music streaming service, is attempting to negotiate better terms with record labels as it prepares for a potential initial public offering next year.




According to a report from The Wall Street Journal on Tuesday, Spotify is streaming music on short-term contract extensions from all three major record companies as it tries to negotiate more appealing deals for potential investors.

A separate report from Music Business Worldwide claims Spotify's long-term contract with Universal Music Group expired more than a year ago, while similar deals with Warner Music Group and Sony Music Entertainment ended earlier this year.

Spotify is looking to balance a growing subscriber and free user base with slim margins on streaming rights. Last year, Spotify's losses mounted to almost $200 million despite an increase in revenue to $2 billion, double what it made the year prior, the WSJ report said.

The company wants to pay less than the current 55 percent share of revenue it hands over to content owners and about 15 percent to music publishers and songwriters.

Apple Music pays out 58 percent of subscriber revenue to record labels, a figure some music executives want Spotify to pay for both paid and free user tiers. That might be a hard pill to swallow for Spotify, which has more than 30 million paying users and another 70 million listening for free. By comparison, Apple Music had 15 million paying subscribers as of June.

Some labels are said to be willing to trade lower rates for other rights like control over content access, or the ability to release new music only to Spotify's paying subscribers. Others would like to see limitations on the free-to-stream tier, a strategy that would dissolve Spotify's core feature of offering both paying and free users access to the same music catalog. And of course there is the option of raising subscription pricing.

Spotify is under pressure to reach amicable agreements with all three major record labels to boost finances ahead of an expected IPO. Making the situation worse for the company is increased competition from deep-pocketed rivals Apple and Google, both of which can weather potential price bumps and industry headwinds.