Updated: Jul 16, 2018
If you follow the stock market, you know how it works. A new company releases their Initial Public Offering (IPO) and depending on the hype, belief, structure, strategy or downright hope that the shares will be low enough to get in to and rise high enough for you to make a profit, we jump on this economic rollercoaster. Well, what does this have to do with the music industry? Spotify happens to be one of the largest newborn babies of this years stock market entry and there are a few things you should know.
1) Mo' Money - More money to support 'freemium' service
This IPO and influx of money will allow Spotify to keep running their operations and offering their 'freemium' service model. I mean, it makes sense to have people utilize the service and get used to it. People who are used to functional and engaging applications tend not to want to change much over time. With all the new content being released on Spotify, the company has a great chance to continue to retain their loyal fanbase. Keeping this model sets them apart and invites so many more new users, everyday. "Now, all we have to do now is... pay the artists. Ha!"
2) Mo' Money - More money for benefits & features
What happens when you get a lot of money? You spend it, Duh! What's important for Spotify is what they spend it on. Running the 'freemium' model as they are spearheading, isn't a big revenue driver... (more like a marketing strategy) unless the users get converted into paid subscribers. Now, we're talking! New features will keep the users engaged and coming back for more to build on their playlists and profiles. Payment comes from the convenience of a service or something that interrupts that service being removed for smooth use. Abundant interruptions such as ads, pop ups and those pesky 30 sec trailers you can't skip through so you play the darn game anyway and end up liking it then downloading it and... anyway. Hey, I know it's not just me. More paid subscribers = more revenue. "Okay, we're off to the paying of the artists part, right? Ha!"
3) Mo Money - Investors cashing out
Let's get back on topic with this IPO. Investors would have an opportunity to cash out. The investors I'm talking about are the ones who first invested in the company and have been floating this money pit ever since. The company does not have to be profitable for me to get paid, said every investor ever. This stock offer would allow those that have been waiting to get their coins back into their piggy banks and the chance to sell off their investment without cash strapping the current operations of the company. Cash and pressure on the company's operational costs won't be an issue with the public money balancing out the buyers and the sellers. "Now, if we can squeeze some of that $0.00397 royalty rate closer to an actual penny, then these artists can actually get paaaaaid! Ha!"
4) Wait... No Money?
What, no money? Spotify's founder is now worth $2.5 Billion dollars at the closing of bell of the company's first day of public offering, but the company still isn't profitable. You heard me, all this public money being thrown at them is a hope, wish and a prayer that it can finally turn the corner to profitability. Listen, I'm rooting for them. I want them to continue to be a trailblazer for the digital landscape of the music industry but right now, not being profitable carries a weight over their heads against future investors. On second thought, they didn't seem to have a problem launching this IPO through direct listing or handling a $1 billion debt they were able to maneuver away from, so in that case, the future is promising. "Promises, promises... where's that check at, tho?"
5) No Money... The Artists are still waiting.
Okay, just to put this in perspective and for many to understand the effort Spotify has put in since their origination. Spotify has given out to labels/artists almost $10 billion since it's launch. That's nothing to sniff at in 12 years, especially with all the competition and exclusive launches of music on other platforms. Here's where the cauldron bubbles:
Artists still feel like they're not getting enough money for their works being streamed.
In 2016, Spotify made $3.3 billion in revenue but was still hampered by obligations to pay the labels for licensing rights of the content used on their platform.
Spotify has promised to pay billions of dollars to the big record labels in exchange for better rates.
The stronghold the Top 3 has, has been the crux of their issues with not being able to increase their gross profit margin. Survival may be the mission.
The Copyright Royalty Board recently ruled that music-streaming services need to increase payments to songwriters by 43% over the next five years.
BUT THERE IS HOPE:
I don't know how Spotify is going to do it with all and who they have to pay. But I do hope they figure it out. Maybe this IPO will open up a way to negotiate better rates from the labels so the company can reach the black, at least? Maybe it could lower it's operating costs or better yet, invest in features and benefits for their users for conversion to paid subscribers. All this to get the needle closer to paying the artists what they deserve for their works.
All in all, someone is going to win and someone is going to lose. The artist ultimately is the one who suffers or flourishes. Welp..."Them's the breaks"but does it have to be and if so, for how long?
Thanks for reading.