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Yesterday, Spotify renewed its licensing agreement with Universal Music Group (UMG). According to the agreement, premium-tiered Spotify users will get exclusive access to select albums two weeks prior to free-tiered users. In exchange,聽 that Spotify’s royalty payments will be modestly reduced.

The new license deal with Universal Music Group under more favorable terms with labels, with the streaming service using its growth and mindshare as leverage. And at first blush, this new licensing deal opens that gate.

聽in August of 2016, Spotify’s royalty payout “was a full 85 percent of its top line.”聽And there is no real incentive for the major labels, which make up the bulk of Spotify’s library, to reduce its payout in correlation with Spotify’s growth. And as The Verge discovered in its analysis of Spotify’s contract with Sony,, making licensing agreements with labels much more complicated than calculating the cost of revenue per stream.聽So while the UMG deal may serve as an important signal that Spotify can get a handle on its royalty payments (and neither UMG or Spotify has confirmed that royalty payments have, indeed, been reduced), it does not make Spotify’s path to IPO obviously clear.

The new deal with UMG is also admittance from the company that exclusives are becoming a bigger part of the music streaming experience. “We know that not every album by every artist should be released the same way, and we鈥檝e worked hard with UMG to develop a new, flexible release policy,” said Spotify’s CEO Daniel Ek聽. The march towards exclusivity聽has also been reinforced by聽 from artists Frank Ocean, Chance the Rapper, and Drake.

For Spotify, which actively touts that its free-tier has access to its full music library, the agreement with UMG to go exclusive is a dent聽in its armor.聽Without other labels reporting new licensing deals, the impact this UMG deal will聽have on Spotify’s music library, overall royalty payments, and growth is hazy.聽And as competition in the streaming space heats up, reduced royalty payments in favor of exclusivity聽are not guaranteed.

For now, the renewed Spotify deal shows that Spotify has some leverage. And if it can hold onto its reduced royalty payments for modest limitations on its free tier, the path forward to a 2018 IPO appears attainable.

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