Courtesy of Spotify
Earlier this year, Spotify raised $1 billion in debt, The Wall Street journal reported. Bloomberg says investors valued Spotify at $8 billion at the time. But the debt included "onerous guarantees," the Journal wrote.
What does that mean? One term allowed investors to convert their stakes at a 20% discount when Spotify IPOs, a discount that will "grow larger over time," a source told Bloomberg.
Terms like this put pressure on 10-year-old Spotify to IPO. The problem will be in convincing investors that the business can make a profit. Spotify rival Pandora has struggled as a public company, while its other big rivals, like Apple Music, don't need to make a ton of money for their larger parent companies. No company has been able to truly prove that streaming music is a massively profitable business on its own.
To improve Spotify's margins, CEO Daniel Ek has been trying to negotiate lower payout rates to labels, Bloomberg reports. Spotify right now pays 55% of its sales to record labels, and 70% of revenues to the music industry generally (including publishers, and so on). Bloomberg reports that Spotify wants to get it its label share down below 50%, but talks appear to have stalled. Rival Apple pays labels 57.5% of sales.