Spotify filed for an initial public offering with the United States Securities and Exchange Commission, Axios reported Wednesday, citing several sources familiar with the move. The music streaming service is reportedly looking to go public on the New York Stock Exchange, with most indicators pointing to a Q1 2018 IPO but not accounting for a copyright infringement lawsuit which emerged Tuesday as Wixen Music Publishing demanded $1.6 billion from Spotify over its supposedly unlicensed use of thousands of songs, including creations authored by established musicians such as Neil Young, Tom Petty, and the Doors. As Spotify’s confidential filing with the SEC was made in late December, the emergence of the lawsuit may delay its long-held IPO ambitions as it likely wasn’t anticipating a high-profile legal battle nor should it be looking to embrace one while making listing preparations.
Whether or not Spotify ends up pushing its IPO plans to a later part of the year will likely primarily depend on the validity of the plaintiff’s claims, i.e. its level of confidence regarding a successful defense. While the timing of the lawsuit makes an out-of-court settlement more likely, such a development may still not be plausible due to the scope of the alleged infringement which could easily make Wixen Music Publishing’s settlement demands deemed too high by Spotify. The startup’s move to go public after over a decade in the business is also significant in the context of the manner in which intends to do so, with recent reports suggesting it’s pursuing a direct listing without an underwriter which is a risky move that simultaneously avoids high fees usually associated with IPOs but also lacks protections against the company’s stock crumbling should the public sentiment regarding its prospects suddenly become negative.
Disregarding an extremely unlikely scenario in which Spotify settles its dispute with Wixen Music Publishing in a matter of weeks, the company’s F-1 filing with the SEC will soon be updated to reflect a new risk for investors. Given how the firm’s current valuation is estimated at approximately $20 billion, a lawsuit demanding eight percent of that figure is likely to significantly hurt its IPO ambitions if it has any basis in reality.