Music is fun and all, but now it's time to make a crapload of money. And now, Spotify's biggest investor is stating the obvious out loud. In comments to Reuters this week, Northzone general partner and Spotify board member Par-Jorgen Parson planted the rough timetable on a near-term IPO, just like Pandora.
Spotify is now valued north of $3 billion, and Northzone says they are the biggest stakeholder outside of the cofounders. And, with well-connected, moneyed backers like Goldman Sachs now on board, the road is smoothly paved towards Wall Street.
There's only one problem with this: cofounder and CEO Daniel Ek recently said he doesn't want an IPO, and doesn't need the capital. In a recent interview with Swedish paper Dagens Industri (in Swedish), Ek pointed to the endless haggles and distortions that going public introduces, including the constant focus on stock price, share valuations, and quarterly earnings reports. Indeed, that is one of the reasons why top executives at Live Nation are rumored to be considering a massive buyback of shares to go private. Other battered music stocks, most notably The Orchard and now-private Warner Music Group, have already been delisted.
But all of that can easily get overruled by one simple fact: going public can make a man very, very rich (just ask Tim Westergren). Which is probably why, in the same article, Northzone expressed polite deference to Ek's wishes. "But, at the end of the day, it is primarily up to the founders to decide how to best build the company for the long haul," Parson noted.
Spotify need to pay more Tuesday, December 11, 2012
instead of paying just 70% of its revenue as royalties, Spotify needs to pay a lot more so the labels/artist/songwriter/publisher get more revenue.
80% of revenue as royalties
20% of revenue to Spotify
p.s. If Spotify is worth $3 billion and the 3 majors reportedly own around 20% of Spotify, that mean Universal/Sony/Warner has $600 million from Spotify investment.
And they probably didn't put in a penny. $0 money invested and getting $600 million in return. What a great deal.
Casey Tuesday, December 11, 2012
80% in royalties? No company can afford that.
Visitor Tuesday, December 11, 2012
Then they'll just have to die.
Spotify need to pay more Wednesday, December 12, 2012
Sure they can.
For example, if Spotify makes $5 billion a year one day. 80% royalties would mean $4 billion.
That would leave Spotify with $1 billion to pay for their expenses (bandwidth, personnel, marketing, office, servers etc..).
Whatever left over is PROFITS.
Casey Wednesday, December 12, 2012
$1 Billion to pay bandwidth, personnel, marketing, office, servers, and taxes. They can't make $5 billion and not pay taxes. That alone will be huge. Personnel is not that simple either. As the amount of subscribers grow, so do the amount of personnel.
When it is all said and done, at the end of the day keeping 20% is not enough. It is pretty safe to say that iTunes wouldn't be able to survive on 20% either, otherwise Apple wouldn't have raised such a hissy fit back when the price was supposed to climb above $.99. They claimed they would lose all their profit if they had to take a cut in the revenue they make.
Dacesita Thursday, December 13, 2012
Yeah, Casey lives in his financier's bubble... If besides a masters in economics, MBA or music business degree (read 'brainwashing') you also would have common sense you'd be worried about this planned move.
Of course they can pay artists. Only if you get Wall St. sharks like Goldman Sachs then you can't because they are the worst of all and they are the ones who created the financial crisis in 2008. Besides that, any company that goes public cares about shareholders and their demands first. The last thing they care are musicians. Really, the very last thing. They will care only if most major artists will withdraw. And indies will never withdraw because they live in a fantasy world that if your Facebook friends can find you on Spotify, then you have gotten some mysterious free exposure. In real business world only what goes in comes out. There is nothing free.
18 million + Tuesday, December 11, 2012
IFPI will report in January that total paying subscription worldwide will be north of 18 million
2010: 8.2 million paying subscribers
2011: 13.4 million paying subscribers (63% growth rate)
2012: projected to be north of 18 million paying subscribers (35% growth rate)
Good news or bad news? since the growth rate is slowing down significantly.
Casey Wednesday, December 12, 2012
It was predicted a while back that the growth rate would suffer until there was significant bundling with carriers and ISPs. It appears that was at least partially correct. In the US, the fastest growing company has been Muve, a bundled service.
Spotify and other services thought this would be easy to overcome. What the streaming companies never predicted was that ISPs and carriers would be such strong penny pinchers. For the large providers, any added fees are passed on to the customer directly and a $10 per month fee makes them uncompetitive. Small providers have bigger fish to fry, such as network upgrades.