“This sale has nothing to do with our view of Spotify’s future,” said Warner Music Group CEO Stephen Cooper, as he revealed that WMG had sold 75% of its Spotify shares during Monday’s Warner earnings call.
And if that sounds rather like the business equivalent of ‘It’s not you, it’s me’, well, Cooper is not alone in swiping left on the prospect of a long-term relationship as a Spotify shareholder.
Warner followed Sony Music, which has now sold around half of its 5.71% stake in Spotify, while remaining similarly supportive of Spotify’s business. But if Warner and Sony aren’t selling because of fears over Spotify’s long-term viability, why are they cashing in now?
There could, of course, be multiple reasons. Both companies have presumably decided they no longer need the extra leverage of being a substantial shareholder, with Spotify indicating its future profitability will not come from squeezing the labels. Indeed, with competition from Apple Music and Amazon (plus a host of international contenders) hotting up, Spotify can’t afford to alienate its main suppliers.
Both companies might be eyeing up acquisitions and cashing in on the windfall certainly looks pretty good on the majors’ balance sheets – Warner made around $400 million (£295m) on this sale and Sony has said it expects to yield about 100 billion yen (£667.8m) on its entire stake. As one-off payments go, it’s certainly a lot easier to achieve than the multiple blockbuster albums needed to generate a similar sum through their core businesses.
But, of course, a substantial chunk of this money is not actually destined for the major labels’ coffers. Both Sony and Warner have now pledged to distribute equity proceeds amongst both their artists and distributed labels (“If included in their agreement,” Cooper clarified on the latter group).
Sony’s quickfire sale seems to have come at least partly from a desire to get that process moving and be seen to do the right thing by its acts (CEO Rob Stringer is renowned as being artist-friendly), while Warner – which led the way in pledging to share its proceeds with artists back in 2016 and has the similarly creatively inclined Max Lousada at its recorded music helm – would not want to be left playing catch up in that process.
Now, both majors will be in a race to find a workable formula for distributing the money – which, given the number of rights-holders involved, the number of years covered and the rapidly changes in the streaming ecosystem, represents the most complex major label project since Warner’s Parlophone Label Group divestment programme. And possibly ever.
Somewhat ironically, the world’s biggest music company, Universal, and the indie-ist, Merlin, seem to be adopting similar stances. Neither have made a comment on whether or not they will be selling their stakes, but Music Week sources suggest that Universal has yet to sell any Spotify shares, and has no immediate plans to do so.
Universal’s cautious approach (it only confirmed its intention to share proceeds from its equity stake once Spotify formally announced its IPO plans) seems partly born from a desire not to send the wrong signal to the market. After all, in low trading volumes since the IPO in April, almost no one seems to be selling Spotify shares apart from major labels. But it’s also presumably keen to extract the maximum value for itself and its artists (Universal has yet to confirm it will pass on proceeds to distributed indie labels) and that means playing a waiting game.
A happy by-product of this for Universal could be that, by the time it feels like selling, Sony and Warner might have found a working formula for redistribution (or, possibly even better for Universal, several formulae that definitely don’t work for artists).
Weird as it is to see Sony and Warner cracking on with giving the indies a payday ahead of Merlin, the situation for those represented by the indie digital rights body is even more complicated, given that it has to divide up funds amongst its members before they send it on their artists (although, as a non-profit, at least Merlin doesn’t have to worry about its own stake).
But none of that answers the question of whether labels should actually be selling those stakes in the first place. Spotify’s share trajectory has been downward since its first ever earnings call last week (in which the streaming giant came across rather like an intern trying to talk the talk in their first finance meeting). That call should be a wake-up one for Spotify, proof that Wall Street will be less indulgent of its “We are the way, the truth and the light” shtick if it's not backed up by hard figures. But few financial types believe Spotify won’t be a long-term blue chip stock capable of throwing off money, so long as its subscriber numbers keep growing.
If they do, and Spotify’s stock soars way higher than its current $150-ish (£110-ish) valuation, the majors may be leaving money on the table. But will they also miss out on the chance to be a part of a true music business love story? Here’s hoping Spotify doesn’t turn out to be the one that got away…