A report by Bloomberg cites five individuals as having confirmed that Spotify is planning on the move. The company's most recent internal valuation was pegged at $8 billion, based upon a sale of $1 billion worth of convertible bonds this March.
While investors are willing to support companies that haven't yet turned a profit as long as they believe in their positive long-term prospects, music streaming is a difficult area to convince them to bet on.
"This is just a tough sector, and that is skepticism Spotify will have to overcome," Mark Mahaney, an analyst with RBC Capital Markets explained.
On the positive side, Spotify is the market leader in the music streaming wars, with over 100 million listeners in total, more than 30 million of which subscribe to the company's paid tier, which allows them to avoid the commercial advertisements that free listeners are subjected to and also offers perks such as offline listening. Sales for the company almost doubled last year, totaling $2.2 billion compared with $1.2 billion in the prior year.
While that all sounds rosy enough, consider that the company also paid out almost the equivalent amount, $1.8 billion, in music royalties, most of which is banked by the three major music labels, Universal Music Group, Sony Music Entertainment and Warner Music Group.
Add to that the specter of increased competition, most notably from Apple Music. The company just launched last year and already has over 15 million paid subscribers (the company does not offer a free listening tier), meaning in that short period, it has already amassed around half of the paid listeners that it took Spotify almost 10 years to generate.
Apple has also been aggressive in its pursuit of exclusive offerings from major artists such as Drake, Snoop Dogg, Chance the Rapper and, most recently, Katy Perry. Spotify recently hired music mogul Troy Carter to try and beef up its exclusive offerings, but the company is a tough sell to artists who receive higher royalties from Apple than they would from Spotify, largely due to the presence of the free tier.
Spotify chairman Daniel Ek has repeatedly refused to allow artists to release their music on Spotify's paid tier only, but if an IPO (initial public offering) on the second half of 2017 is held as reported, there may be pressure from investors to change that policy, along with other moves that could help the company ultimately become profitable.
We'll keep you up to date on Spotify's plans as more details become available.
