News from the Goolag: What if You Make a Deal with Spotify and It Turns Out to Be With YouTube?

We’ve all heard from numerous sources that Spotify is in the middle of renegotiating their license agreements with at least the major labels.  What has gotten less attention is YouTube’s interest in buying Spotify.  Spotify’s exit to an IPO is getting cloudier by the day as another tech bubble bursts in Wall Street alongside a volatile stock market, one should not rule out an acquisition of Spotify and who better to do it than Google’s wholly-owned YouTube subsidiary.

Remember that we saw this July 21, 2014 story in Re/Code by the highly credible tech journalist Kara Swisher:

Omid Kordestani, who has just temporarily replaced Nikesh Arora as chief business officer of Google, is joining the board of Spotify, according to people with knowledge of the situation.

In addition, sources said, one of the search giant’s former execs, Shishir Mehrotra, will become a special adviser to CEO Daniel Ek and the company’s management.

The move is a fascinating one, especially since sources inside Google said that new YouTube head Susan Wojcicki has expressed interest in acquiring the popular online music service if it were for sale. It is not currently and there are no such discussions going on between the pair about such a transaction.

YouTube is so disinterested in buying Spotify that Ms. Swisher was evidently asked to revisit that July 21 story on July 22 to clarify the reference to Google’s potential purchase of Spotify–only.   She wrote:

…Spotify co-founder and CEO Daniel Ek has indeed met with Google execs about various and substantive commercial deals at YouTube, Google Play and Android.

“There has not been a single conversation about Google’s interest between the two,” said one source, reflecting many others. “There was never a price, never a negotiation, never anything.”

Like most truths in business, that will be true until it’s not.

Does YouTube have the money?  That’s hard to tell because of the total lack of transparency about YouTube’s earnings in Google’s already opaque balance sheet.  However, Morgan Stanley analysts have broken out an estimate of YouTube’s earnings revealing an astonishing profit margin and revenue growth:

They clearly have–or can get–the money.  Given the paltry royalty that YouTube pays to artists, songwriters, labels and publishers, a Spotify acquisition would put the proverbial fox in the henhouse.  And like all of Google’s other efforts, that means the already pathetic Spotify royalties could go into a nose dive.

So you have to ask yourself–what protections are built into the soon-to-be renegotiated Spotify deals to allow copyright owners to pull out of a license if involves getting further into the Google grasp?