What Spotify Going Public Means For Artists & Users

The most significant day in the history of the Streaming Music business is officially here - Spotify went public on April 3rd. But what happens to Spotify matters for the future of music, particularly at this turning point in the format wars. Streaming now makes up more than half of the industry’s revenues, and Spotify has more paying subscribers than any other streaming service. With an opening day evaluation of $29.6 billion, major labels are going to gain a lot from Spotify going public, especially Sony - who is poised at $1.5 billion with a share of 5.7%. Between them, the three major music companies - Sony, Universal and Warner - are believed to own a cumulative stake in Spotify covering 10-15% of the company. That stake is currently worth somewhere in the region of $3.5 billion. All three labels have pledged to give a portion of this money to their artists, but several reps for top artists have mentioned that they haven't been informed of payment procedures. What will labels do with the windfall?

Sony Music and The Orchard are committed to sharing with their artists and distributed labels any net gain they may realize from a sale of Sony Music’s equity stake in Spotify. This is consistent with our previously announced policy of sharing breakage and equity proceeds from digital catalog licenses with our artists and distributed labels. - Sony Music Spokesperson

What’s particularly interesting about Sony’s stake in Spotify is that it is widely assumed to have been increased over and above stakes received by the company in licensing deals. This explains why Sony was the only major music company to have a stake worth more than 5% of Spotify when the streaming firm filed its F1 prospectus with the SEC (Securities and Exchange Commission) in February. Spotify itself could be using the public listing as a way of covering up its financial shortcomings. The company made $5 billion in revenue last year – mostly from $10-a-month subscriptions – an increase from $3.6 billion the previous year. But the company has to make significant royalty payments to rightsholders, including artists, labels and song publishers —$9.8 billion in its history, which, in part, led to losses of $1.5 billion in 2017. And the payouts could intensify.

Spotify is not raising capital, and our shareholders and employees have been free to buy and sell our stock for years. So while tomorrow puts us on a bigger stage, it doesn’t change who we are, what we are about, or how we operate. As I mentioned during our Investor Day, our focus isn’t on the initial splash. Instead, we will be working on trying to build, plan, and imagine for the long term. Sometimes we succeed, sometimes we stumble. The constant is that we believe we are still early in our journey and we have room to learn and grow. I have no doubt that there will be ups and downs as we continue to innovate and establish new capabilities. Nothing ever happens in a straight line — the past ten years have certainly taught me that. My job is to ensure that we keep our foot on the pedal during the ups, so that we don’t become complacent, and that we continue to stay the course with a firm grip on the wheel during the downs. We have a lot to do — we are only in the second inning — and I’m more excited than ever for the future. - Daniel Ek, Co-founder/CEO - Spotify

While Spotify is making less and less money per subscriber, thanks to super-cheap family plans introduced in 2016, the company sees growth from the rising number of global smartphone users and expansion into new territories (that's where India factors in). ANCILLARY BUSINESS PLANS Spotify might look into other business plans apart from streaming to meet the investor's demands. This could include selling data to live concert companies (can be a concern for privacy issues) or another plan could be investing more on their 'Spotify for Artists' portal. With its sights set as high becoming the world’s No. 3 ad seller behind Google and Facebook, the free-tier is not going anywhere but is going to make us sit through plenty of ads. Partnership going with Merchbar already allows artists to sell stuff through their Spotify pages. Spotify has also stepped into podcasts and video, by hiring a new head of the department away from Disney. It is exciting to see Spotify step towards fan facing business areas. There could even be Spotify-branded smart speakers: A recent corporate job listing called for a hardware exec to oversee "a category-defining product" compared to Amazon Echo. WINDOWING NEW RELEASES & RECORD LABEL? Last year, Spotify struck a series of licensing deals specifically in preparation for going public, and in a significant concession, it announced that it would allow some artists to restrict new albums to paying subscribers for the first two weeks of release. With this new, IPO-minded deal in place, look for A-listers to start putting this window to use—and get ready to either wait them out or fork over $9.99 a month. With Barry McCarthy on the helms of the public opening, Spotify will want the results to be more like Netflix—also public. One huge advantage Netflix has is that it produces much of its own content, lowering its licensing payments. This will be difficult for Spotify to do, as it wouldn't want to risk alienating record labels by acting too much like one itself. Last year, the streaming giant bought an online music studio and unveiled an A&R-like program to "identify and break the next wave of music superstars". With the extra clout of a public company, Spotify could eventually take the next step and start signing artists to distribution deals directly. IN THE END.. Going public will shine a light on how much Spotify executives and shareholders earn compared to the company’s long-criticized payouts to artists - especially with only 0.71% of total artists make up for 90% revenue collected in 2017. Musicians who aren’t part of the industry’s commercial elite already have enough reasons to feel jilted by Spotify. Its playlists have been found to be heavy on tracks from a once-obscure Swedish company with a shared investor and even more substantial on tracks from major labels.Across all services, more than 99 percent of streams last year came from just the top 10 percent most-streamed tracks overall, according to data tracker BuzzAngle Music. Going public is Spotify’s next step in turning music streaming entirely into the status quo, and the biggest players should now be on board. With the added financial transparency, underpaid artists should have plenty more reasons to object, and perhaps quietly seek out alternatives. But they’ll be going up against the new establishment.