Spotify raises $1B in debt with devilish terms to fight Apple Music
techcrunch.com
techcrunch.com
There's a lot of bellyaching here about the dilution for the existing shareholders. But I don't see how that's any different from an equity raise -- you're still diluting.
Now, the risk with convertible debt is that there's no valuation FLOOR so the company is betting on itself to execute -- and if they miss expectations, that's a problem.
The different lockup period is a bit of a concern, but the reality is that no institutional investor can sell a 10% (or whatever) stake in a public company overnight. So they capture a little bit more upside but it's not that material in the scheme of things IMO.
They can, however, sell much of it during the 3 month head start they will have over everyone else.
I agree it has to have some diluting effect, but if this capital is the difference between a successful IPO and a failed one, I'm not sure how you argue it represents a loss of value to employees.
Google quickly hit 6x there IPO, but if you had say 5 million at IPO and nothing else then selling 1 million of that would have been a really good idea. Or at least getting a put option to sell near the IPO price.
Granted, you must pay taxes ect. But taking 20% off the top is generally a really good idea.
In the end I learned the hard way about a bizarre strategy for keeping your company going. First, have a high valuation. Second, find a small company with liquid assets. Third, buy out the company with a stock swap and only a little cash. And now you have more capital on hand so you can lie to your investors for a few extra months.
Not that I'm bitter.
So if you calculate it out, it means the bank demanded to have their money back (at least in theory/balance sheet) in 8 months and 2 weeks. This likely allows the banks to actually take this risk (ie. defend it to their board/shareholders).
On the other side this allows Spotify to say that they've gotten a "cheap" loan, and even that they've "avoided dilution", when in reality it's a very expensive loan that dilutes quite a bit (how much depends on the valuation at IPO, but at the "current valuation" of 8.5 billion it dilutes 16%. If the valuation is less or the IPO gets delayed it dilutes more, up to 100% at about $1.4b or lower valuation, at which point shareholders and employees lose everything they have invested in the company). It doesn't keep the 30% rate over time, but I bet that came at the cost that the bank also have some way to foreclose on the loan.
Effectively to value of Spotify (money you get when buying the whole company) went down somewhere between 300 million and perhaps up to 600 million because of this deal. And that's ignoring the other loss shareholders get because of this deal, after all debt is senior to equity, there's the equity conversion and pre-selling, which is going to mean the stock price will go down a bit before any stockholder can sell.
Let's say they have a $8.5 billion IPO and they decide to sell: suddenly, 15% of their company was just dumped onto the market. There's no way they could survive that.
Spotify raised $500m last year. Now it seems to think it needs to nearly double its existing > $1bn funding/debt pile so badly it's willing to settle for a loan-shark mugging.
I'd guess the money isn't needed for new customers - more to stay afloat long enough to have some hope of getting to IPO and allowing the investors to get some of their money back before the office burns down.
Spotify would literally need to double its subscriber base to make this debt viable, and that doesn't seem likely.
And for the institutions in the loan agreement that are banks, all they're doing is some extra book keeping to raise the money involved.
Fwiw I'm parsing this as the interest to service the debt topping out at 10% rather than 15% (which imo is a pretty big difference)
Someone is going to collect $10 (plus $1 or $2 increase every couple years) per month for a huge segment of the music listening population for basically the rest of our lives. Spotify want it to be them.
I personally doubt it. Exceedingly few markets are winner-take-all. Plus, monthly subscribers are "sticky", so they're not going to leave overnight if one competitor gains a slight edge, and everyone else will have a chance to catch up.
Your point about the labels and streaming services as middle men is a good one too. Labels own all the content, so they have a lot of power to influence the market as well.
What we really need are a change to copyright laws that requires a mandatory uniform-fee-only streaming license for all music, tv and movies.
You vote with your dollar by supporting the kinds of market you would like.
I started using Spotify in 2008 because the concept was what I envisioned for the future and iTunes was an awful practice in buying music. I thought I'd still "download" music on the side, but I honestly never felt the need for it. Sure Spotify doesn't have _everyting_, but it has an impressively huge amount of fringe music that I would never have expected and more than enough music for me to listen to until I die. And it grows.
Only independent labels without established names, who need the exposure from streaming as much as they need the money would suffer from a streaming monopoly.
Don't get me wrong - I'm not a fan of streaming services and prefer to own my music (a large part of which isn't available for streaming anyway) but for most people this is an incredibly fair deal.
I've gone with Google Music for this reason - my personal collection is in the cloud for streaming purposes (saved me the hassle of a home media server) - I occasionally buy new music from various sources and upload it to my account.
OTOH you can listen to hundreds of dollars worth of new music in a day if you want to, with no risk. If you pick something on a whim that turns out not to be good, just move on to the next album or artist. It's like going to a record fair with an unlimited budget, and a truck to carry your finds home in. There is a never-ending supply of crazy stuff on there.
If you use it like this, it's incredible.
Once smart phones came around and data plans approached a level where streaming music wouldn't explode your bill, I think streaming became a no-brainer. It still took me two years of having Spotify before I realized I could throw away all my old CD's that were eating up space, but once I reached that point, the value of streaming, at least to me, was pretty clear.
Sure, there are gaps in the music, but I think for most people, those gaps don't exist. And even for the layperson replacing their CD collection, having a Spotify/Apple Music/etc. account means having access to their music on any device, anywhere they go. Duplicating that kind of access with a CD collection is difficult.
Don't forget much of the world (I'm in the UK) already has generous enough data plans that many people stream without thinking twice. The US is an outlier in this regard.
Anyway, maybe I should try one of the free offers. :-)
unless you wrote it and played it you don't 'own' any music.
I am still paying for my downloads because I like weird artists and I think it is an important vote that I really like their music and want them to continue producing more. That is a luxury few afford anymore.
No competitor can offer $5/month unless the service is positioned as a loss leader. The overwhelming costs for streaming music is the licensing and royalties of music content. In other words, if Spotify paid their programmers half the market rate salaries to save overhead costs, they still couldn't sell online music for $5/month.
If "loss leader" is a legitimate business strategy, it means only the big companies with offsetting non-music revenue like Amazon/Google/Apple can offer cheap streaming music. Companies with music-only revenue like Spotify/Pandora/Tidal would not be able to compete with that.
Your monthly fees are now approaching $100 per month. However, you're still left with three gaps -- old movies, recently released DVDs, and movies in theaters. Considering all this, plus Sean Parker's idea to start renting new releases for 24 hours costs $50 per movie, it's pretty fair to say that Spotify is significantly cheaper than the equivalent in videos.
Among many the bad terms disclosed in the article, IMO this is probably the worst - basically, this right is a license to cash out and torpedo the company within 3 months (just the right amount of time to see how the market reacts to Spotify's first earnings call as a public company..), leaving the other investors (and employee common stock holders!) with greatly devalued stock.
Of course they have a disincentive not to do this: if they did start to sell after 90 days, the stock would start plummeting before they could sell all shares, so the last shares that TPG/Dragoneer sell would be worth much less than the first bucket of shares, but if they do sell it means that things are very, very bad and they'd rather cut their (20% discounted...) losses, and will be much, much better off than the other investors and employees 3 months later.
godspeed Spotify!
Edit: The more I think about it, doing nothing would be most optimal. Doing nothing is so much more cost effective when you know it's a inevitable decline.
Stock compensation is a lot less competitive here due to it being taxed as normal income for the most part. Not to mention salaries being a lot lower in general than USA or some other parts of Europe.
Basically: they're kinda fucked if it goes south.
I look forward to the inevitable pump and dump around IPO time.
It's not a company I would invest in if I had any money to begin with.
Also that's not to say they all do nothing, some of the talks I've listened to from their Engineers are fascinating and have learned heaps. But it was a shitty decision to ditch the desktop app and rewrite it with no functionality .
But you know what? Google doesn't have a desktop app for Google Music. Amazon doesn't have a desktop app for Amazon Prime. Apple doesn't have a desktop version... so yeah, despite the fact that Spotify's only-one-in-the-business desktop app isn't perfect, it does exist... (and I do use it every day between Android and two desktops and I think it works pretty ok)
About once a day, my MacBook's fans start spinning like crazy. By now I know... oh, it's "Spotify Helper" stuck in a loop again, lemme force quit it.
Before I reinstalled, instead Spotify would show me "there's a new version!" every single day, seemingly without upgrading anything.
These serious quality issues, plus the horrifying visual ads (for playlists and new albums) make Spotify a product I kind of love to hate.
I mostly dig the iOS version though.
But I'm still angry with how these services transform the idea of "music player" into "streaming client hooked into the commercial music industry."
rm -rf ~/Library/Caches/com.spotify.client/
I had no idea it was another fucking chrome wrapper now. It used to be completely native didn't it? This explains a lot.
Does anyone fancy putting the last good client up on mega or something?
* I pay for my streaming music which has no ads so I don't get a freebie AND complain about advertisements (really man...?)
Yeah, I'm a paying Spotify customer and have been for years. You misunderstand which ads I'm talking about.
Hilariously, this exact website could not stop fawning over Apple Music's nearly identical curated, editor-created or automatically generated content.
Personally, I love the Spotify curated content.
I listen to my Discover Weekly every single Monday and very often choose one of their regularly changing playlists when I'm not listening to my own lists.
I was providing what I found to be humorous context regarding the content you derided as advertisement (I'm a bit surprised that curated channels of music are ads to you, do you think that television "Channels" are advertisements for television content too ??)
Well, I just don't understand why it's hilarious that "this website" liked Apple Music's curated stuff, as a context for me not being a fan of Spotify's curated stuff. To me it's just like, a bunch of people liked this one thing, and now I dislike this one other thing, ha ha?
Here's Spotify's Chief Revenue Officer glowing about the advertising potential of their curated playlists:
> “Music is an integral part of life, day in and day out,” said Jeff Levick, Chief Revenue Officer, Spotify. “Our new targeting solutions based on rich behavioral insights combined with our global footprint in 58 markets give brands unprecedented ways to reach streaming consumers.”
https://press.spotify.com/se/2015/04/16/spotify-launches-pla...
Sure, I pay to avoid the actual jingles, but the playlists are still part of their advertising program. And yeah, I think placing these suggested playlists in my visual field every time I launch the app constitutes a form of advertising.
Mostly though I just have a visceral aversion to the copy they use. They give me the same bad feelings as when I look at billboards or hear radio jingles. Right now it's suggesting me to "go out and own this day like if you were boss of the world." I would prefer to use a Spotify client without this stuff.
You mean in Browse, where you go to discover new music? Is there a streaming service that doesn't have a Browse section with recommended playlists/albums/etc?
It's not like they're advertising Dove soap or Coca Cola, they're showing you new music.
"No need to stress out. Stay relaxed with these easy, upbeat songs."
"Soul. It's about feeling. It's about authenticity."
"Coffee table jazz. Relax to the sound of jazz."
"Chill hits. New and hot hits for your chill moments."
I'm just saying, like, my preferred Emacs-based music player (Bongo) never shows this kind of inane, awful, soul-crushing babble.
But finally, an app that doesn't require me to share my pictures with them. That was the spike in the coffin for me. I really enjoyed Spotify when it was new, but their clients has just been lowering in quality ever since beta.
Honestly, I think the beta client was way better than the client today.
> Honestly, I think the beta client was way better than the client today.
As a response to a post only stating that you don't need to use their client? Seriously?
Also, what has facebook to do with anything?
iTunes?
What? iTunes isn't available on the desktop anymore? When did that happen? I used Apple Music on my laptop when it was released last summer.
Plenty of businesses waste money on some employees who effectively do very little, like diversity officers, equality consultants and such useless positions ... The problem isn't them , the problem here is Spotify unstustainable business model, period. They will go down, sooner or later. The fact that they had to take a loan means they can't raise money through VC rounds anymore. It's clearly the end of an era for a LOT of startups. And that's fine. It's call redistributing cards.
I hope more companies hire diversity officers for the sake of thinking hard about how to ensure that policies and company behaviors aren't harmful.
But for me it's a "I'll believe it when I see it" sort of thing. The default belief has to be that it's just a token position for the sake of legal deniability, just as most of HR has evolved into.
I think Spotify is a great example of why job candidates should look before they leap when it comes to agreeing to be managed in an Agile process or made to work in an open-plan office.
Unfortunately, I agree with you that these types of situations can be good for unproductive employees who want to hide somewhere within a company that might look good on the resume.
I can't say it definitively about Spotify since I have never worked there. All I can say is that the mixture of status signalling open-plan office + needless opulence + Agile strongly suggests dysfunction.
It's further discomforting that they plan to use this money for marketing according to the article. That seems like a big gamble. It's somewhat of a signal that they fundamentally believe what they have engineered is good enough and satisfies customers, and now they just need to generate spam to get more customers.
For a company at their stage and market penetration, I'm not sure this makes a lot of sense. I think Spotify might actually do better by creative innovative new engineering features and improvements, rather than just trying to lever up the number of subscribers for what will more or less be the product they have right now.
If the problem is user acquisition, you don't get there with engineering improvements. Only exception is if those tech/product improvements are for increasing virality.
Yes they'll probably spend the money on marketing / PR, which makes sense since that's likely where the bottleneck (or foreseeable bottleneck given the other players in the industry) in their business is now.
Where is that massive growth supposed to come from if the app is too complicated for users older than 30 years and too bloated for devices older than 2 years?
I shuddered a bit when I read this. I worked at Audible - another successful audio media company - for four years, and you just perfectly described the dysfunctional scenario I witnessed while there. Couldn't have described it better myself.
Fundamentally they have a bad business model. Good on them for ditching Taylor Swift - while she is very popular the financials likely showed the ROI for having her on the platform was negative.
IMO Spotify is going to either need to change how their business works or make some painful cuts to become sustainable.
The ROI is not negative for major artists. Missing major artists creates "holes" in people's listening habits, and they start getting fed up with the service the more of them that are missing, and that leads to cancellations and churn. Spotify would take her or Adele or whoever else has pulled their content back immediately if possible.
2014 Revenue: $1.3 billion (up 45% from 2013)
2014 Net Loss: $197 million (up from $68 million loss in 2013)
http://www.nytimes.com/2015/05/09/business/media/as-spotify-...
It turned into a pretty unexpected ordeal, I had to call Spotify customer service, they asked me if I could reactivate my Facebook account just for this, have them "fix" it, then deactivate again, etc. At the time Spotify Linux support wasn't very good either (don't know about now).
Anyway, I switched to Amazon Prime Music because I was already a Prime customer and figured that paying nothing beyond the Prime subscription was perhaps better than paying $8 or whatever Spotify's rate was then.
I am really glad that I did it. Amazon Prime Music has consistently worked extremely well for me on iPhone and iPad and in browser. With standard AT&T 4G service, even here in rural Indiana, I have no trouble streaming from Amazon when I go running.
The major downside is that their music catalog is not as comprehensive as Spotify. But I've found that there are only a handful of artists that I really love which I can't listen to yet on Amazon (Beirut being the one that I really miss).
The catalog is very large though. They have any type of music you're looking for, from country-western to African to the latest and greatest unheard-of indie artist. They just don't have exhaustive coverage of all of them.
If you are an extreme audiophile type and you really need to have completely exhaustive coverage of every possible artist, then Amazon won't work for you. But if you try out Amazon and find that it mostly covers the artists you enjoy and you don't really need the exhaustive coverage, and you happen to subscribe to Prime, then it's a great option.
Full disclaimer: I am not a fan of Amazon in general, but I am a fan of good products, and for casual music streaming from most, but not all, artists, I think Amazon is probably the best service available right now.
The way I break it down:
Spotify --> You require on-demand access to absolutely every imaginable artist, you enjoy heavy integration with social media clients.
Apple --> You may want to purchase the music, house it in iTunes, and own fully offline copies (not just caching, which other services can do too).
Amazon --> You're more casual about it than either of the above cases and you already have Prime. You either mostly listen to Top 40 stuff, or else for the less common stuff, you verify ahead of time that Amazon offers a catalog in that area that's good enough for you. You probably don't care about owning the music, but you still can purchase it via Amazon if you want to.
They are probably the best still in the business, but the only company that had everything, including the really obscure indie artists, were Grooveshark. Though expecting Spotify to have obscure Filk songs about 40 year old scify is probably asking too much.
1) Discovery. Rdio would inform me when new albums are out by artists I listen to. Spotify doesn't. Rdio's "Artist Stations" were also much better – not only did they not repeat (like Spotify's do), they also let you choose whether you wanted to hear "more" or "less" of the artist themselves while listening to their station.
2) Social. I miss seeing my friends faces next to albums, letting me know that they'd listened to it. I also miss the "Network Heavy Rotation" view, that showed trending albums by friends/users I follow. I miss that a user's profile would show you what albums they've been listening to frequently lately. Spotify only tells you what track a friend is listening to right now, and their profile shows you what artists. So, awesome, you know your friend is listening to Bowie, but you don't know which of Bowie's 20 albums they're into.
3) Your collection. Rdio had no upper bound on saved albums (that I'm aware of). I've already peaked the maximum number of saved songs in Spotify – it literally won't let me "save" anything else without going through my existing albums and choosing something to remove.
4) Playlist searching. Spotify by default names your playlist according to the first song you've added. You have to go out of your way to give it a different name. This means there are TONS of playlists in Spotify that are named "Nirvana" purely because that was the first song in the playlist. It massively pollutes searching and makes finding good playlists tough. Also, there's no sensible ranking of playlists – Rdio would at least tell you which were the most popular, which was usually good enough.
There are about another dozen things I could name, but I'll stop here. Spotify has felt like a giant step backwards from Rdio, and I think I'm going to explore alternatives soon.
Spotify does, but you need to follow the artist from the artist page. I get a push a notification on the iPhone and a notification on the Mac desktop app. That said, sometimes an album being out doesn't necessarily mean it being available on Spotify in your country.
I will say, at least for me, Spotify's "Discover Weekly" which is refreshed Sunday nights is amazing. I've saved at least 2 songs from it every week, and most weeks more than 2.
If only they could build an android app that doesn't crash or get flaky all the time...
The social features sound cool.
Rdio basically had a feature that created an "Rdio" station from what they called your "heavy rotation". It featured songs by artists that were similar.
To me, it was the equivalent of "Discover Weekly", except available at any time instead of once a week.
All the features you listed is nothing compared to that basic functionality.
The almost complete absence of social features however, that's a big one in my opinion.
Personally, I think the less social features, the better.
Personally, I'm an album-centric listener so I preferred Rdio's music organization.
- Browse by label (additionally sort by most recent releases): I know it's not a mainstream thing, but labels, particularly smaller ones, are very good curators and a great indicator for worthwhile music. For the music I enjoy it's absolutely necessary to keep up with a label's recent releases.
- A great community that had tools to discuss music and releases: Being able to comment on albums, playlists and other items seems like a very obvious feature to me. And it was a powerful one on rdio - You'd often see familiar faces in the comment section of an album and start interesting discussions. This isn't possible on Spotify at all. Furthermore I could see what's popular among my friends (and not just in general!) on a single "Heavy Rotation" page - if you carefully select who to follow, this is invaluable. I have a similar follower count on Spotify as I did on rdio, but no meaningful way to interact with them - there's an activity feed where I can share discoveries with everyone, but it's the saddest thing I've ever seen in social networks: It's a one-way feature to shout recommendations at everyone but there's no way for others to get back to me and add their feedback. I might as well talk to myself. If you enjoy being a curator and recommending things to others Spotify is close to useless.
- A working queue: This is just horrible. It's not obvious at all how the queuing system works in Spotify. Apparently it's tied to whatever client you're currently use. Listening on mobile? Better prepared to see a very different queue once you switch over to the desktop. In rdio the queue was basically a persistent "Listen later..." playlist - it could differentiate between single songs, full albums and palylists - if you had an album and a playlist queued it would show two items which you could drag and drop in order to move up or down. Beautiful. Enter Spotify: Imagine you're listening to an album and you'd like to add a second album to be played after the current one. Instead Spotify will start playing the second album immediately after the current SONG thereby interrupting the current album. By the way, the option to start that confusing process is called "Add to queue", not "Play next" which doesn't exist. Horrible. On iOS you can't change the order of the current queue either - you can't even jump from the current track to item #27 as the only way to navigate the queue on iOS is to skip track by track. It basically means that you'll never use the queue for anything and just create your own "Play later" playlists.
I get the feeling that Spotify is for people who don't want to deal with music. Start the app, hit play on a Spotify-provided playlist with a hip background cover and mildly interesting name and be done with it. That person is not me. However I can see why it was appearing to the masses. The sad thing is that rdio could do all these simple things and be used in similar fashion to Spotify and its playlist-centric approach too - it just offered all those additional features on top and still lost.
I love Spotify and am a daily user but honestly it's going to take a lot of work to turn things around for them.
Content acquisition costs are killer and are not something that can go away.
I don't know whether that will carry over to music quite as well though.
Video is different. Most content companies have bid out their back catalogues to one exclusive provider, or creating additional premium content (think House of Cards). In video it's all about premium exclusive content. In music there is some of that, but it's mostly all the same.
Edit: actually, according to the article, the 880mn correspond to "royalties & distribution". There is more info about these numbers at http://www.musicbusinessworldwide.com/how-can-spotify-become...
The best option is to attempt downside protection by selling shares in the secondary market, even at a discount - of course, Spotify being a EU company, I don't know how difficult it is to do that, though I imagine (like most other things) it's more regulated (aka. tougher to do) than in the US. Even if easy, it's getting harder and harder to find secondary market buyers.
Rough out there!
Well, actually, (c) the founders have lost their controlling interest and are being strong-armed by early investors, but early investors' preferred share privileges are usually not very helpful by this point.
The most cynical take is that the investors are buying them off to be not just more aligned with investors, but less aligned with employees =)
I disagree. The founders definitely have an important stake in the outcome but they stand to get very wealthy if it works out and early employees will - in most cases - make back a premium on the lower wages they took because of stock options (which you should never do) and the extra hours they put in to make the company a success.
Note that simply because of the asymmetry between the potential pay-out the goals are not aligned.
Superficially, yes, they are aligned because if the founders get nothing the employees will also get nothing but employee options are not the same as vested founder shares and employees could easily be 'under water' based on the value of their options being lower than the amount of money they left on the table by choosing this particular employer rather than a more established one.
So for founders the incentive to gamble is much higher (all-or-nothing), in fact I'd argue their goals are roughly the same as early (seed round) investors rather than early employees, once they decide to take on venture capital. The pressure will be on to go home-run-or-bust.
Note that the deal outlined above is exactly one of those. Conservative founders running a profitable business would not gamble like this, but since it doesn't matter any more the only way they will get anything out of this is the home-run and what's good for the employees is no longer relevant to the management that inked this deal (for employees it might actually be better to jump ship at this stage because the 'bust' scenario is a lot more likely with this much pressure than without).
"Bust" is the most likely outcome when you sign up to work for a startup, so unless their goals/wants have changed I don't see why they'd want to jump ship now.
Employees as a rule are not looking at the company in the same way that investors and founders do. If you have evidence that employees as a rule understand the amount of risk involved and that they understand fully that the most likely value of their stock options is zero then I'm definitely all ears. But that's usually not how it's being sold.
In fact, it is sold along the lines of 'we're not going to pay you your market rate but you have quite a bit of stock (in reality .000001% (or some other rounding error)) if you work really hard for the next 4 years YOU TOO WILL BE RICH. But the number of employees that actually do end up like this is small. Still larger than the number of founders but the founders really will be rich, the employees are lucky if they make up for their lost income.
Of course some employees will be more savvy than others and will negotiate a wage that reflects the reality of start-up life but more often than not the employees accept (substantially) below market wages in return for a bunch of empty promise. Feel free to blame them for not being informed, but to claim they have 'the same incentives' is definitely not the case in my experience.
However if that's the case, it looks like you've just used a lot of words to effectively say "Accepting equity as payment for working at a startup is a poor decision so therefore employee interests were never aligned with those of the founders".
I'm perfectly ok with it if employees were actually given all the relevant bits of information and if they actually were aware of all the potential outcomes. There is a lot of selling going on here that I'm not ok with.
And yes, I've used a lot of words to say exactly that. Thank you for putting it more concisely, the risk:reward ratio for employees and founders is vastly different. Founders 'risk everything' but looked at in a different way founders risk just as much - their time, and the potential upside for a founder is much, much larger than for an early employee.
Oldest game in town.
It doesn't mean that they don't care about their share in the company (obviously, after spending 5 years of your life at a company, you want your share of the cake) but it's unfair to conclude that they only have their stocks, a lot of the early employees either left the company or occupy rather senior positions at Spotify.
Everything has to work out just-so for employees to end up wealthy beyond making up for the lost pay and the overtime, assuming they even get that (most likely: nothing).
They make up for this with a combination of a lower exercise price, the vesting clock starting earlier, and typically a larger grant for earlier employees.
Companies retain employees by giving additional refresh grants and/or raises.
I'm not sure why it's OK for Uber to raise a few billion $ and there isn't a fuss about how that's hurting employees when it's not okay here. They both are getting diluted.
Will be interesting to see how this plays out.
That said, Apple Music is only going to get better, and fast.
How? They are making approximately a 1 billion dollars a year (30 million subscribers * $10/month * 12 months/year * 30% cut). Their engineers are probably paid less too since they are not based in the US.
The only thing i can suspect that they are blowing that much money on is marketing but even that just seems ridiculous unless they are losing that much on the freemium users.
Can someone explain this to me?
IMO, what's really more problematic and complicated is their economic arrangement with the major labels, which, while ostensibly "70/30" is actually way more complicated than that. The article does a decent job of explaining it: http://www.theverge.com/2015/5/19/8621581/sony-music-spotify...
TL;DR: to induce a major label to sign, Spotify had to give them a sweetheart deal, including minimum per stream payments, minimum % of ad revenue, and free ad space.
The really tricky things to consider are: usage-based and per subscriber minimums. Hard to determine exactly, but it's highly possible that Spotify is much worse off than the 30/70 spotify/label split.
Also, note that there's a good chance the contract is already re-negotiated since that was published, and given Apple Music, likely not in Spotify's favor.
They own nothing and sharecropping with other peoples property never ends well. The labels can bleed them to within an inch of their life without any risk as there are other companies with additional revenue streams to support themselves that will offer better deals and take up the slack.
And I wouldn't put it past Goldman to use background influence to delay the expected listing to get themselves ever favorable terms by adding a few years to the process. I'd be interested to know the cap on the share price discount that goes up 2.5% every extra six months. And what would happen in a private buyout? Is this deal a poison pill against not listing from management? Possibly management want to ensure this listing happens largely no-matter what markets do.
Maybe I'm a skeptical person but it seems there could be rationale to this deal we dont see. I know Spotify are struggling to compete on the growth of paid subscribers. Maybe this is managements way to get a profitable exit before the struggling financials really show and markets get more rational on unicorns.
Only reason I tried out competitors is to try and save money, but after my trial with Google Play Music I'll just commit to Spotify at full price.
How is the signaling from this any better? It still plainly reveals that the previous valuation is not representative of reality. The only difference is that we don't have another imaginary number to outright replace it with. And can we all agree to stop parroting valuation numbers based off investors buying preferred stock?
I don't see a signaling issue here.
Things could change, but right now I think Google is more competitive because they offer two bundled services that are both superior in design (IMO). If Soundcloud can survive financially, they are very competitive for those seeking music discovery.
I just mentioned this above. It always seems to be Spotify this or Apple Music that. Play Music works great, and is even better that I'm grandfathered in at $7.99/month beta price.
You're probably right about any Linux devices, but there's an official Apple Music app for Android you can install right now: https://play.google.com/store/apps/details?id=com.apple.andr...
If Spotify were to improve these issue maybe they could get more paying customers but these improvements should not cost $1B.
Beyonce doesn't release her songs on SoundCloud, but those who I listen to (or find myself listening to) on on SoundCloud aren't on Spotify.
But I also mostly use Spotify to listen to music I already know and sometimes get recommend stuff I like, but that’s not the primary function.
Maybe our music listening habits are just completely different? I don’t think there is anything wrong with Spotify or SoundCloud, I just think different people have different preferences.
If you are into that it’s probably exactly right for you and something like Spotify would be a poor fit to your needs.
It's an art (not a science) to deliver a service (for next to free), while making a profit after paying royalties.
Spotify raising a billy debt round doesn't surprise me.
Anyone care to explain what this means?
So, if they raised $1B for 10% equity, the valuation of the company's worth would be $10B.
To avoid this hassle entirely, they raised it as 'debt'. The reason being, if they had to give away more than 8.5% of the company for the $1B, the company's valuation would have gone 'down' which can give off a bad vibe/look.
So, "down-round" == reduced valuation, and "poor signalling" == consequent bad vibe?
http://www.theguardian.com/technology/2015/may/11/spotify-fi...