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Google “Laughing” at $10 Billion Spotify Pricetag, Sources Say…

laughingdog

Yes, Google is kicking the tires on Spotify.  But they’re outright ‘laughing’ at a price tag of $10 billion, which is what both investors and major labels are hoping to draw.  “[Google might] buy it for a few billion, max.,” a source close to the on-again, off-again discussions told Digital Music News this morning.

“But they’re laughing at $10 billion, or even half that.”

handJune 11th, 2014: “The Major Labels Are Trying to Sell Spotify for $10 Billion, Sources Say Part of the reason why Google has the upper hand is that there are only a few companies that can actually purchase Spotify, and Apple is already spoken for.  This is a problem that’s been brewing for a while: just last month, noted investor Fred Wilson pointed to serious problems ahead for over-valued companies like Spotify, especially in the absence of more subscribers and solid revenues (not to mention profits).  “The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one,” Wilson flatly stated.

“So the moral of this story is that you can push valuations when you have investors knocking down your door, but unless you are cash flow positive and expect to remain so for the foreseeable future, you do that at your own risk.”

10blnsmile   hand May 15, 2014: “Spotify’s Wall Street Window May Have Disappeared… Enter the Wall Street Journal, which seems to have been punk’d by Google executives earlier this week.  A Journal article this week on the potential sale confirmed earlier sources to Digital Music News that Spotify was seeking $10 billion.  But Google executives made sure that the Journal published their disinterest and effectively slashed the pricetag through the media.  “Talks broke down for a number of reasons, including the high price Spotify was asking, as well as Google Chief Executive Larry Page’s lack of enthusiasm for subscription entertainment services,” the Journal parroted. And the result?  According to the first source, that leak was done strategically to send a message to other potential bidders and puncture Spotify’s inflated delusions.  “Just like you have Apple and Google colluding on employee salaries, you also now have them working hand-in-hand to avoid those unnecessary bidding battles,” the source continued.

“Beats was $3 billion, and [Apple] only paid $500 million in cash on that.  So let’s stick with that price range, is the feeling.”

The big question is what impatient Spotify investors like Goldman Sachs and Norwest Venture Partners will do next.  According to earlier sources to Digital Music News, Spotify investors are becoming increasingly agitated for a liquidation event, including a Wall Street initial public offering (IPO) or sale to someone like Google.  “Whatever [CEO] Daniel Ek says is bulls–t,” a source remarked, referring by recent denials of any upcoming IPO plans.  “[Spotify] is going public whether Ek likes it or not.” Meanwhile, Google (and potentially others) have time on their side.  “If the IPO doesn’t fly, they’re f–ked,” the source continued, while pointing to serious desperation ahead.

“[Google] can wait this one out while Spotify starves.  The price will just go lower and lower.”

Image: ‘Laughing Dog‘ by Rachael@flickr; licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).

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Comments (38)
  1. jw

    >> “Beats was $3 billion, and [Apple] only paid
    >> $500 million in cash on that. So let’s stick with
    >> that price range, is the feeling.”

    Wait… what!? Beats is worth what Spotify is? 300,000 users vs 40,000,000? 300,000 paying users vs 10,000,000 paying users?

    Where’s that logic come from? That all streaming services are somehow equal? If Apple paid $500m for Beats Music, at more than 30x the paying subscriber base, I don’t see how Spotify could go for less than 10x Beats’ price tag.

    If all Google is looking for is a streaming service, they might as well just grab Rdio for a fraction of the price (and subscriber base).


    Reply
    1. Anonymous

      Where did you get the 300k stat? The last Beats subscribers count I saw was lower and included all the trial users as paying users.


      Reply
      1. jw

        That was a very generous ballpark.

        I figure it’s somewhere between 100,000 & 300,000. To me, it wasn’t clear whether 60k “subscribers” was total family subscriptions or all users on family plans, so I counted them as ~4x (which is totally arbitrary, & not based on any real data). Maybe that was clarified somewhere & I didn’t see it. It could be closer to 110,000 users… I’m not trying to inflate Beats’ numbers on purpose, for this argument it seemed more practical to overstate their impact, rather than understate it. The point is that valuing Spotify in the same ballpark as Beats is *absolutely insane*.


        Reply
        1. Jody

          Don’t forget that the $3B Beats acquisition included Beats’ highly profitable hardware business. Public statements have suggested AAPL paid $500MM for Beats’ music subscription service. Speculation on their paying sub base ranges from 110-250K subscribers.


          Reply
    2. Andy O)))

      Google already has a streaming service. They’re after Spotify’s user base, not its content.


      Reply
      1. TuneHunter

        If they are after user base they should buy for total peanuts Shazam (400M+) and Soundhound (300M+) with over 700M users. Once they add own anonymous music and lyrics ID users they will control over billion looters of music. SIMPLE CHANGE OF BUSINESS MODEL converting Radio and streamers to digital music stores will make Google/YouTube $50B hub of $100B music industry.

        Only then Spotify, Pandora, XM and Shazam will have justification for over $10B capitalization.


        Reply
        1. smg77

          Probably because Google realizes that nobody is going to pay a fee every time they use Shazam.


          Reply
          1. TuneHunter

            You are stubborn. What choice you will have if your radio display will show just station name.
            YOU WILL PAY TO KILL YOUR ANXIETY! @ 39 cents you will not mind to be legit and educated owner of the tune.


            Reply
    3. Jserr

      Beats has a very profitable headphone business, Spotify loses a ton of money every year. They are right to want to keep it in that range at least, regardless of user or subscriber count. Streaming may be what users want but it’s a s**t business to be in and I think Spotify’s investors know it now. Only behemoths like Apple and Google can afford to absorb the losses in exchange for getting users stuck on their respective software/hardware platforms.


      Reply
      1. jw

        That seems like a very pessimistic take on streaming, as if it’s not going to make into the mainstream. iTunes wasn’t any more profitable it’s first couple of years. Neither was YouTube. If you’re saying that the company needs someone like Apple or Google to float them through this transition period, that could potentially be the case if investors just don’t have the patience. But to pass judgment on the profitability of streaming (or lack thereof) based on barely 3 years of existence seems very premature.


        Reply
        1. Jserr

          I think streaming is undoubtedly the future and it’s clearly what consumers want but I also think that it’s a near impossible business for a stand-alone player to make work given the economics. I understand the popular view that labels and publishers should be more approachable when making deals with new companies to stimulate competition, but that’s not what’ been happening so I strongly believe the only players that have the leverage to get decent terms from the content owners and have the resources to stick with the model while it grows and develops through it’s unprofitable adolescence are the biggest platforms.


          Reply
    4. YoYo

      Beats has an established brand with experience in many fields of the industry…Spotify didn’t event the wheel or the streaming…


      Reply
    5. hippydog

      Quote “Where’s that logic come from? That all streaming services are somehow equal? ”

      yes.. somewhat..
      when you start thinking about it..

      How much would people “lose” and not be able to replace if one streaming service went down and they had to move to another..

      This is why the battle over who will be the ‘top’ streaming service will not be won by a catalog,
      but over the quality of the interface, how it ‘connects’ users to other users (and the artists)
      and curation..


      Reply
      1. TuneHunter

        Thank you for promoting Spotify.
        The best ever music giveaway outfit created – the only way to improve it and provide ultimate experience they should start send money to premium users.


        Reply
        1. hippydog

          no.. thank YOU, for making me look relatively normal..


          Reply
  2. TuneHunter

    Google makes in 4 days what Spotify does in ONE YEAR – they do not need extortion based business.

    Labels have much better future from CHANGING THE BUSINESS MODEL than cashing few billions from two ABUSIVE PARTNERS!


    Reply
    1. Paul Resnikoff

      Define “makes”


      Reply
      1. TuneHunter

        “makes” = actual revenues landing at corporate bank accounts.
        “extortion” = business forcing other folks to give away their property to be in business.

        In this particular case brainwashing property custodians (read LABELS) to give away the goods!


        Reply
        1. Paul Resnikoff

          Funny because if someone tells me “I’m making a lot of money!”…

          then I think, “they are keeping that money”.

          Revenues are far less interesting than profits.


          Reply
          1. TuneHunter

            I agree Spotify does not make any money. It’s just pulverizing billions dollars of music to get insufficient for own survival revenues.


            Reply
  3. Anonymous

    If the IPO does fly then Spotify will have a massive cash infusion needed to strike new partnerships, expand their services, etc. Then the price will go higher and higher. The future is looking bright for Spotify. They are rapidly becoming the main source for music among teens and young adults. Many of their competitors are stalling. At this point I wouldn’t say $10 billion is out of the question. Google should have jumped on buyout offers sooner.


    Reply
    1. Jserr

      what partnerships are left to make? It’s too late for them to continue with their slow, incremental growth strategy. They need a wholesale, overnight change in user behavior (ie: willingness of many more millions of people to become paying subscribers) in the very short term to get where they want to go. Apple will creep up on them, as will Google, two companies much more able to absorb losses during this extended period of streaming’s infancy. Wall Street is cooling to tech IPO’s and new money will become harder and harder to come by, especially with no exit in sight. If they can sell, they need to do it.


      Reply
  4. Anonymous

    This is currently where the show is.

    Music is now background at best and artists are mostly like ticket scalpers outside the circus, just another low level carnie stooge working for their wages, all in hopes to intrigue a few stragglers to enter the tents to view the sideshow freaks and clowns on tiny bicycles, all in the end goal of lining the pockets of their masters.

    This is where the popcorn eating happens now, music is just something to try and lure a few cattle through the gates to graze around on other things, the things that actually turn the dollars over.


    Reply
    1. Anonymous

      “Music is now background at best and artists are mostly like ticket scalpers outside the circus, just another low level carnie stooge working for their wages, all in hopes to intrigue a few stragglers to enter the tents to view the sideshow freaks and clowns on tiny bicycles, all in the end goal of lining the pockets of their masters.”

      Well said. The Silicon Valley coup d’état seems to be going off without a hitch.


      Reply
  5. Anon

    Digital subscription is running out of options. Internet money comes mostly from advertising. Advertising with digital music is difficult because you can only run ads between songs (because who actually watches their music player while listening these days?). If only there were a way to serve an audio ad at the same time people are listening to their music. Hey Google, now you owe me a billion bucks!!!!!


    Reply
    1. hippydog

      Money from internet Advertising is difficult because most companies can only recieve ads from large corporations..

      Facebook and Google make money from advertising because they can TARGET advertising, and that means small companies can also purchase Ads.. and THATS where the advertising money is..


      Reply
  6. Anonymous

    “But they’re outright ‘laughing’ at a price tag of $10 billion”

    I think you’re being used to send Spotify a message. Never underestimate Google’s storytellers, they’re the crème de la crème.


    Reply
  7. Anonymous

    Your doggy is like Putin in a dog skin! – I like your choice.
    Unfortunately Google’s relationship with music industry resembles Putin’s attitude.


    Reply
  8. Willis

    What a joke. Way overvalued.


    Reply
  9. FarePlay

    I find this entire next chapter in the music business sad.

    First we were rocked by out-of-control online piracy that sucked billions from the artist community and effectively devalued music. Next we had Spotify, who took advantage of a hobbled industry and kicked open the door to the next major hit to the sale of recorded music: interactive streaming.

    If you remember, it took Spotify a few years and eventually giving up equity to get the deal done. Now, the major labels are having buyers remorse; the reality is finally sinking in. They made a big mistake. Streaming is only the “future” because the labels allowed it.

    But the damage is actually much worse. Like piracy it sends the same message. “Why pay for it when you can get it for free.” Why I say it is actually “much worse” is because the average listener doesn’t want to hunt for stuff, so their world of music actually becomes smaller. They end up listening to the same music over and over and all of a sudden music becomes boring background music.

    Why do you think packaged goods company spend billions a year on packaging? Branding.


    Reply
    1. Anonymous

      Reliable streaming only became possible as a mainstream thing in the last few years, with improvements to bandwidth and audio compression. When a medium which increases access becomes technologically feasible, there is immense market pressure towards that direction.


      Reply
      1. FarePlay

        You left something out.

        FREE.


        Reply
  10. Anonymous

    Streaming is only the “future” because the labels allowed it.

    haha

    i’m sure the narcissistic labels would love to think and claim as such.

    Sadly the labels are archaic antiquated slow to change institutions that have little control of such things. They seem to be mostly reactive and resistant to change, following the crumb of trails as if there is a pot of gold at the end, a trail of crumbs someone else breaks off the end of the loaf of bread to sprinkle around in hopes they will do exactly as they are doing.

    The market dictates the direction of the future, for the most part, so with the massive over supply, the lack of tech savvy people in music, the mobility of music listening, the small file of an MP3, streaming was an inevitability. It’s such a great thing for telecoms as well who also have significantly more leverage and bully power then any label ever will, so they can really apply pressure to make it happen, what a dream for them, every hipster or tweener streaming music over the network through their celly, brilliant innit?

    This is why dragging the feet on digital music and making the Napster people et all enemies at the beginning, was pretty much the death knoll for monetizing recorded music maybe forever. It also damaged the whole cool factor for a long long long time and now the hipster movement has become significantly uncool as well, so what was once not very long ago just dripping and oozing with cool, is now like retainer and pocket protector uncool and i don’t see it changing anytime soon. The subsequent 20 years since Napster has been a disaster and it looks like a Wall Street/1%er/Techster prop up is the only real chance at any sort of existence ongoing.

    I mean the Harvard Stanford etc. frat boy/girl social site circle are still the coolest people around, regardless how badly they are greasing people. Music could have really jumped on board with that whole crew and kept its cool, sadly it chose not and lost its cool. No cool for you! ;)

    I know a lot of ya’ll are into this whole adapt thingy, but the biggest baddest labels and artists around are likely in the fight of their life still, trying to find the best way to adapt, regardless how ballin and amazing they try and convince everyone it is for them. That lifestyle costs and a lot of them might get gone like MC Hammer did. I mean that guy was too legit to quit and look what happened to him.

    Recorded music will likely forever be a loss leader for other things. Once all these legacy bands hang up their guitars and dancing pants for good, we will get a real sense of the live numbers that actually mean something for today’s artists and bands and might get a better sense of how well recordings being a loss leader for shows will look for the future. One glance at the numbers and seeing that The Voice or Idol Tours can’t even pack houses, still one of the best ways to break artists around, and you can see some troubling signs ahead, perhaps.

    Maybe there are a few billionaires out there that will sponsor art/music allowing the artists to be a little more free from corporate rein, however, i still foresee recordings being a loss leader for holding a jug of KFC up next to your face with your music in the background, to market to your fans, as the likely main revenue of the future.


    Reply
    1. Anon

      Those are some excellent points. As long as the music industry machine has a steady inflow of content, nothing is going to change significantly. And this is the problem for the aged artists attempting to make a living off their music. There will always be young kids who don’t care about the money and just want to make music and the machine knows this. These kids will then be exploited to hell and become cynical, just like many of the posters on these forums, and the process will repeat itself with a new batch of starry eyed youth looking to gain a following. The only way I see the tech companies and record labels changing their MO is if the content stream dries up, which I just don’t see as a likely scenario any time soon.


      Reply
      1. Anonymous

        Agreed, it’s not a tap that is controllable any more. It’s a free flowing waterfall and every person controls their own tap that feeds into the river that leads into the waterfall, if they want to contribute, and nothing can really stop them from leaving it open, thus providing the deluge of content we are experiencing.

        As an artist and a producer, i am not that cynical, as without the technology and ease of distribution i couldn’t do what i am doing. I’m a bit disappointed and frustrated as to the marketplace and the over saturation and the difficulty to rise above the noise and gather fans all while retaining cool and of course the difficulty in making money, but at the end of the day those are all things that come after the music, so i can deal with it.

        However as a business man and publisher/label owner, where i also have to fund everything, its a different hat and of course i am extremely cynical, frustrated, pissed off and of course what looks like often very harsh, but i understand it all, its just trying to find the right ways to navigate it all.

        At the end of the day if it all goes tits up, i can still make the music i want, just might not have the time, energy or money to do it nor the desire to promote it or share it.


        Reply
    2. FarePlay

      You believed you were forging a partnership, when in reality you were being manipulated by the smartest guys in the room. Unfortunately, none of them understand the music business, nor do they have any interest in learning about it. They’ve been selling advertising, not music. You’re just the bait, not the catch. You are lost in a vast warehouse called the Internet.

      Yes, the music business is broken and only you, the artist, can fix it. You start by believing what you create has value and you refuse to take a bad deal. Because until you tell them NO, they will continue to abuse you.

      Take it down, take it all down. Because scarcity is the new marketing strategy. You’re better off with a hundred fans who are willing to pay you, than 5,000 fans who are willing to play you.


      Reply
      1. Anonymous

        “when in reality you were being manipulated by the smartest guys in the room”

        So there continues to some selection pressure on intelligence out there.


        Reply

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