Spotify is inching closer to that much-anticipated initial public offering.
In a deal announced Tuesday with Universal Music Group, a unit of Vivendi (VIVHY) and the world's largest music label, Spotify said it had agreed to make some songs on new albums only available to its paying subscribers for two weeks after a record's release. By doing such deals, music labels hope they can drive more listeners to buy a monthly subscription, currently $10, from Spotify or another streaming music provider, increasing the labels' own revenue.
The new multiyear agreement is expected to give Spotify a path to profitability. At present, the Swedish company that is based in London has remained in the red despite amassing the world's largest music streaming service with more than 50 million subscribers. Spotify has been negotiating new licensing contracts for more than a year with Universal as well as Warner Music, which is controlled by the Ukraine-born businessman Leonard Blavatnik, and Sony's (SNE - Get Report) Sony Music.
The deal with Universal is expected to serve as a template for talks with Warner, controlled by Ukraine-born businessman Leonard Blavatnik, and Sony.
The licensing deals are viewed as an essential step before CEO Daniel Ek can file for an IPO, which could give the company much-needed capital to pay off equity and debt investors while allowing the company to expand into video. Even with the Universal deal, it's unlikely Ek will schedule an IPO until 2018, according to Santosh Rao, who covers the company at merchant bank Manhattan Venture Partners.
Integral to the Universal deal is Spotify's willingness to put some songs behind its paywall, something Ek has rejected in the past. Universal now will be able restrict albums to Spotify's so-called premium paid service for two weeks while singles will be made available to all listeners, a monthly audience of more than 100 million. The deal was effective immediately.
"We will be working together to help break new artists and connect new and established artists with a broadening universe of fans in ways that will wow them both," Ek said in the statement. "We know that not every album by every artist should be released the same way, and we've worked hard with UMG to develop a new, flexible release policy."
While Spotify has the most subscribers in the industry, it is being chased by Apple (AAPL - Get Report) Music, Alphabet's (GOOGL - Get Report) YouTube and Google Play Music as well as Amazon (AMZN - Get Report) Music Unlimited. Each of Spotify's main rivals happens to be among the largest tech companies in the world. Apple's Eddy Cue said in February that his company's subscription music service had gone "well past" 20 million subscribers.
Since forming in 2008, Spotify has generated more than $5 billion for music labels and songwriters, among other rights holders, the company said.