Spotify, which surpassed 50 million paying subscribers earlier this year, doesn't feel the need to raise capital but wants to allow long-term investors and employees to cash out, said the person, who asked not to be identified discussing private information.
Under the terms of the agreement, Universal artists will be able to release their music on Spotify's premium tier for two weeks before they appear on its free service.
According to Recode, the break Spotify may get on its royalty fees will depend on certain subscriber metrics, but nonetheless will give the company a boost as it prepares for an initial public offering, possibly in 2018. Spotify, which has raised more than $1 billion in equity, was last valued privately at $8.5 billion in June 2015. The company is eager to escape the burden of that debt, a convertible loan that will cost the company more money the longer it delays going public. The company is hoping for a public valuation of more than $10 billion and could go public by September, according to The Wall Street Journal. It's unclear whether a direct offering would satisfy the conditions of the loan. Spotify could still choose to go with a traditional IPO, as the lack of precedent for direct listing could pose some risks for the company.
At the same time, the smaller scope of a direct listing could fit Spotify's current needs. The effort, if successful, could be a model for other start-ups wary of an IPO. And as of now, the service has only reached this "windowing" deal with Universal Music Group and not Sony, Warner or EMI.
If you saw our story yesterday afternoon, you'll know that Spotify has signed the first of its new licensing deals with major labels, Universal Music Group.
Spotify is looking into going public later this year, but it may be taking an unconventional approach towards doing so.