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How Spotify got the big record labels on board

Spotify, the European peer-to-peer music streaming service that gives its users access to millions of songs for free is gaining more buzz every day. The service already has millions of users and has managed what many thought was impossible: it got the big record labels on board a free service and gained access to their music libraries.

Spotify has deals with Sony BMG, Universal Music, Warner Music, EMI and Merlin. The first four of these are often called the “big four” record companies.

How did Spotify pull this off?

It turns out that Spotify made the record companies shareholders early on. In October 2008 when Spotify was launched, the big five record labels above together got nearly a fifth of the Spotify stock (18% to be exact) for a mere 100,000 SEK (less than 14,000 USD).

This was revealed today by the Swedish IT magazine Computer Sweden (article in Swedish).

To put this in perspective, Spotify recently got a $250 million valuation at a recent round of VC funding.

Of course, Spotify had to have presented the record companies with an attractive business model, but making them shareholders was probably a pretty good move to sweeten the deal, giving them a stake in what is looking to become a hugely successful service.



3 Comments

We have an English version of the story up now: http://computersweden.idg.se/2.2683/1.240046/documents-reveal-major-labels-own-part-of-spotify

Question is, are they as motivated to care for their holdings when they did not pay for it? I.e. will they milk spotify for the VCs money and then pull out. If they would have paid for it, they would certainly be much more inclined to make the company successful than in this scenario. The ooportunity cost is near zero if the price is near zero, i guess.