Google is planning to take Spotify in a deal valued at roughly $41.1 billion in cash and equity.
Spotify is a music, podcast, and video streaming service, officially launched on 7 October 2008. It is developed by startup Spotify AB in Stockholm, Sweden. It provides digital rights management-protected content from record labels and media companies. Spotify is a freemium service, meaning that basic features are free with advertisements, while additional features, including improved streaming quality and offline music downloads, are offered via paid subscriptions.
Unlike physical or download sales, which pay artists a fixed price per song or album sold, Spotify pays royalties based on the number of artists’ streams as a proportion of total songs streamed on the service. They distribute approximately 70% of total revenue to rights holders, who then pay artists based on their individual agreements. Spotify has faced criticism from artists and producers, including Taylor Swift and Radiohead singer Thom Yorke, who feel it does not fairly compensate music creators as music sales decline and music streaming increases.
The acquisition, first reported by the Wall Street Journal this morning, creates a clear frontrunner in the music subscription space. It would also give Google a massive edge over competitors like Apple Music.
According to research emerging this week, Apple Music now has more unique users than any other streaming music service. Apple’s rapid ascent may have rekindled the on-again, off-again acquisition talks.
The unexpected acquisition may also accelerate the upcoming combination of Google Music and YouTube. Currently, Alphabet and its Google and YouTube subsidiaries are struggling to create a strong, premium music streaming service. That just changed with the acquisition of Spotify, which is now reaching its 50 millionth paying subscriber.
According to deal makers on the Google side, it remains unclear exactly what happens to Spotify after the acquisition is complete. One source pointed to “an expensive acquire-hire,” with Google seeking underlying technology and brain-power instead of the app itself.
Board member and investor Sean Parker, one of the original creators behind Napster, expressed a sense of relief and validation. “Napster offered a glimpse into the future of music technology,” Parker said. “Now, eighteen years later, Google is helping us fulfill that vision in the best, most powerful way possible.”
Spotify CEO Daniel Ek is now likely to be praised as one of tech’s most important entrepreneurs and visionaries. But insiders are already speaking of Ek’s ouster, based on his perceived over-spending on artist royalties.