As Spotify goes public, Sony cashes in and sells some of its stake for more than $328 million

Sony announced it had sold 17 percent of its stake in the companyfor more than US$250 million (S$328 million).

In the music industry, one of the biggest issues hanging overSpotify's arrival on the New York Stock Exchange has been what themajor record companies would do with the billions of dollars inequity they held in the streaming service.

One answer became clear on Wednesday (April 4), when Sonyannounced it had sold 17 percent of its stake in the company formore than US$250 million (S$328 million).

The transaction was made Tuesday, the day Spotify began tradingon the exchange, Sony said. Spotify had closed its first day with amarket valuation of US$26.5 billion.

In Spotify's early days, record companies viewed the streamingservice's hybrid business model of both free and paid streaming asa potential risk that could undermine the sales of CDs anddownloads. So as a condition of granting licences for their music,the labels received chunks of equity.

As things turned out, sales of CDs and downloads have plungeddramatically in the last few years, although the quick rise ofstreaming has increased the recording industry's revenues overall.

What the labels would do with any profits from selling theirSpotify stakes has been a subject of debate in the industry. Thelabels have said they would share the profits with their artistsbut have offered few specific details about how those paymentswould be calculated.

The Worldwide Independent Network, a trade group for small musiclabels, has called on the major labels to share that money with theindependent labels they distribute.

Among the majors, Sony had the largest share in the company,with about 5.7 percent, according to Spotify's prospectus. Thestakes owned by the other two big labels, Universal and Warner,were not disclosed but are believed to be 4 percent or less.Merlin, an organisation that represents independent labels inlicensing negotiations, also has a stake.

Sony said it had sold 17.2 percent of its position in Spotify onTuesday. It offered no further details of the transaction, but ifit was made at Spotify's closing price of US$149.01, the sale wouldbe worth US$260.5 million. If the sale occurred at the openingprice of US$169.50, it would be US$296 million.

Sony also announced on Wednesday that it would book a profit of105 billion yen (S$1.29 billion) for its fiscal first quarter,attributed to both its sale of the Spotify stock and the value ofits remaining stake.

For the big labels, the question of whether - and when - to selltheir Spotify equity ties in with a potential risk when it comes todealing with their artists. If the labels sell right away, they maybe accused of prematurely cashing out; if they wait, they may beaccused of holding on too long to money that they have said belongsto their artists.

Representatives of Universal, Warner and Merlin declined tocomment, but no transactions related to those companies' stakes inSpotify have been announced.

A spokeswoman for Sony Music on Wednesday declined to comment onany details of Sony's transaction. But on Tuesday, before themarket opened, Sony and The Orchard, its independent distributionarm, released a brief statement saying they were "committed tosharing with their artists and distributed labels any net gain theymay realise from a sale of Sony Music's equity stake inSpotify".