Spotify has to negotiate new deals with record labels before it goes public next year

Spotify CEO Daniel EkGetty Images North AmericaDaniel Ek, CEO and Founder of Spotify, speaks at a media event announcing updates to the music streaming application Spotify on May 20, 2015 in New York City. The latest updates include the ability to stream video content, podcasts and radio programs as well as original songs for the application.

Music streaming service Spotify needs to renegotiate its contracts with record companies, and it needs to get it done before it goes public on the stock market, The Wall Street Journal reports.

Spotify is expected to go public in the second half of 2017, according to Bloomberg. That puts a lot of pressure on the company to prove that its business model is a good investment.

At the same time, Spotify needs to renegotiate its deals with record companies. The Wall Street Journal says it has just been operating on short-term contracts, but it needs to put in place long-term agreements on how much of its revenue goes to rightsholders.

Right now Spotify reportedly pays around 55% of its revenue to record companies. Spotify naturally wants to reduce that figure, but record companies want it to go up. That’s going to be something that will have to be worked out between them before the company goes public.

Another issue in the negotiations will be Spotify’s free tier. Unlike Apple Music and Tidal, you can use Spotify for free with its ad-supported tier. Record companies don’t like free music streaming (and Taylor Swift certainly doesn’t), and they’d love for Spotify to either close its free streaming tier or let certain albums be available for paid plans only.

It’s been rumoured since 2015 that Spotify could allow record companies to release albums on the paid tier-only. The company has largely resisted until now, only allowing a few, isolated experiments — but it could be a sticking point in negotiations for its new contracts.

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