Music streaming company Spotify has raised $1 billion (£695 million) in debt financing to take on rivals Apple, Tidal and Google.
First reported by the Wall Street Journal, the deal was later confirmed by Spotify according to Techcrunch.
Unlike equity, debt financing allows Spotify to add to its resources without potentially accepting a lower valuation in the process. The move is thought to be an attempt to safeguard against the increasing business threat of Apple Music, and to allow Spotify to make strategic acquisitions and spend on research, as well as marketing.
The money comes from TPG, a private equity firm, Dragoneer Investment Group, and a number of clients from Goldman Sachs, the Wall Street Journal said. TPG have also invested in Uber, who also raised more than $1 billion in debt financing in 2015.
The structure of the financing deal would appear to place Spotify under a number of strict conditions. It will have to pay annual interest on the debt, which starts at 5 percent and increases by one percent every six months until the company either goes public or until it hits 10 percent.
TPG and Dragoneer are also, according to the WSJ, permitted to “cash out their shares as soon as 90 days after an IPO”, rather than the normal six months. Those shares would cost Spotify’s debt providers 20 percent less than market rate — a discount that goes up over time.
Spotify is valued at $8.5bn (£5.9bn), but has repeatedly posted net losses. In 2014, the company recorded an operating loss of £119m and a net loss of £117m, though it has not revealed financial details since then.
Despite its financial losses, the service is growing rapidly: its estimated 60m total users and 15m paid users place it at the top of the streaming business, even as Apple Music is growing rapidly — reaching 10m users within 6 months (a figure Spotify took six years to reach).
Many companies are betting that streaming music still has room to grow; Soundcloud launched its own paid service on Tuesday, and even the BBC has improved its license fee-funded, though very different in form, Music app in recent months. However, other formats are providing resilient — vinyl records drew more revenue in the US in 2015 than the free version of Spotify and YouTube combined, at $416m (£289m).
[Source:- Wired]
