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Square buys majority of Tidal, adds Jay-Z to its board in bid to shake up the artist economy
This morning Square, a fintech company that serves both individuals and companies, announced that it has purchased a majority stake in Tidal, a music streaming service. The deal, worth some $297 million, will allow artist-partners to keep their ownership in the music company.
Square CEO Jack Dorsey used his other company, Twitter, this morning to explain the deal. Dorsey seemed to expect the transaction to generate skepticism — which it definitely has. In his opening message, he asked a rhetorical question: “Why would a music streaming company and a financial services company join forces?!”
Why indeed. Dorsey’s expectation is that his company can replicate the success of Cash App and other Square products in the world of music. Noting that “new ideas are found at the intersection,” Dorsey argued that the confluence of “music and the economy” is one such point of convergence.
The deal also installs musician and businessperson Jay-Z on Square’s board.
Some early reaction to the deal has proved negative. It’s not hard to riff on the seeming strangeness of Square and Tidal as a pair. And Square has made acquisitions in the past that appeared adjacent and failed to stick. The company bought food-delivery service Caviar in 2014 before selling it to DoorDash in 2019, for example; that Square appears to have made a venture-level return on the transaction is immaterial to the focus argument.
But the bull-case for the Square-Tidal tie-up is easy to make as well. The American fintech just spent a minute fraction of a single percent of its market capitalization on the smaller company, and through its choice to let artists keep their stake, has effectively onboarded a host of ambassadors for its brand.
And Dorsey is not wrong that Square did shake up the commerce game for many offline businesses with its original card reader. Why not take a swing at a part of the economy — music — that has migrated from the physical world to the digital in the past few years, much like small businesses in recent quarters?
Square’s business users, its “seller ecosystem,” as it likes to call it, are increasingly digital. In its most recent quarterly earnings report, “in-person only” usage is falling as a percentage of seller gross payment volume (GPV), while “online only” and “omnichannel” GPV are taking up the slack.
Square has a known win in its consumer-focused Cash App service, which reached 36 million monthly actives in December of 2020, up from 24 million in the same period one year prior. You can imagine tie-ups between the music company and the youth-skewing Cash App audience. And having Jay-Z at the Square boardroom table will hardly make the company less innovative; he may bring fresh perspective.
And then there’s the question of NFTs, or non-fungible tokens, a new form of digital asset that have recently become the cause célèbre of the cryptocurrency community. Given that Square has a growing cryptocurrency business via Cash App, and has invested hundreds of millions of dollars into bitcoin itself. If there is space in the market for Square to bring music-based NFTs to its larger consumer user base is an interesting question. If the answer is yes, Square could now be in a leading position to create that market.
Perhaps the Square-Tidal deal won’t generate the future growth that Square imagines. But the deal is cheap, snagging Jay-Z as a leader is a win and it’s hard to win by only playing corporate defense.
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Spotify Kids app rolls out blocking, listening history features for parents
Spotify is expanding the capabilities of its parental controls on its Spotify Kids app, aimed at children ages 3 and up on a parent’s Spotify Premium Family plan. Before, parents could only select whether the child was directed to the experience for younger or older children. Now, they’ll be able to specifically block content from their child’s account when accessing the child’s listening history.
These features had been hinted at when Spotify Kids made its U.S. debut in March. At the time, Spotify said it heard from parents testing the app in other markets how they wanted to have even more control over the app’s included content. Though the company didn’t detail its plans then, it did say new features would involve allowing parents making more specific choices over what their child could stream.
Both new features are now included in the PIN-protected “Grown Ups” section, previously called the “Parental Settings.” Once there, a parent can select which child’s account they want to to update or view.
The Listening History option will allow them to view every track the child has streamed on the Spotify Kids app over the past three months. From here, a parent can also opt to select a track and block it by tapping the “block” icon next to the track in question.
These blocked tracks are then removed from the child’s account and can’t be streamed. However, parents can unblock the track further down the road if they choose, by accessing either the Listening History section or the Blocked Tracks section and tapping the red icon next to each track.
Spotify says these new features are the first step in many planned updates for its Kids application, which today includes more than 8,000 kid-appropriate songs, stories, audiobooks and sounds that are curated into 125+ playlists. Though the app is aimed at kids young and old, many children will age out of it around their tweens, despite its support for an “older kids” experience. That’s because kids have established some favorite artists and musical preferences by then, and the more limited catalog on Spotify Kids doesn’t deliver. Plus, the downside of hand-curation means newly emerging hits — like, say, those blowing up on TikTok — may not make an appearance on Spotify Kids until later.
While it makes sense that Spotify would focus more immediately on parental controls catering to parents of the younger children, in time being able to go the other direction — perhaps a whitelisting option or the import of pre-approved playlists — would be appreciated by parents of older kids.
The Spotify Kids app is now live across 14 global markets, including as of today, Japan and Germany.
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Talking the future of media with Northzone’s Pär-Jörgen Pärson
We live in the subscription streaming era of media. Across film, TV, music, and audiobooks, subscription streaming platforms now shape the market. Gaming and podcasting could be next. Where are the startup opportunities in this shift, and in the next shift that will occur?
I sat down with Pär-Jörgen “PJ” Pärson, a partner at European venture firm Northzone, to discuss this at SLUSH this past winter. Pärson – a Swede who now runs Northzone’s office in NYC – led the top early-stage investor in Spotify and led the $35 million Series C in $45/month sports streaming service fuboTV (which has roughly 250,000 subscribers).
In the transcript below, we dive into the core investment thesis that has guided him for 20 years, how he went from running a fish distribution to running a VC firm, his best practices for effective board meetings and VC-entrepreneur relationships, and his assessment of the big social platforms, AR/VR, voice interfaces, blockchain, and the frontier of media. It has been edited for length and clarity.
From Fish to VC
Eric Peckham:
Northzone isn’t your first VC firm — Back in 1998, you created Cell Ventures, which was more of a holding company or studio model. What was your playbook then?
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Social music app Playlist lets you listen to music with others in real time
A new app called Playlist aims to make music a more social experience than what’s offered today by the major music platforms like Apple Music, Pandora or Spotify, for example. In Playlist, you can find others who share your musical tastes and join group chats where you listen to playlists together in real time. You can collaborate on playlists, too.
The app, backed by investment from Stanford’s StartX fund, was founded by Karen Katz and Steve Petersen, both Stanford engineers and serial entrepreneurs. Katz previously co-founded AdSpace Networks and another social music platform, Jam Music. She also was a founding executive team member at Photobucket, and founded a company called Project Playlist, which was like a Google search for music back in the Myspace era.
Peterson, meanwhile, has 35 patents and more than a decade of experience in digital music. In the early 2000s he created the software architecture and ran the team at PortalPlayer Inc., which powered the iPod’s music player and was later sold to Nvidia for $357 million. Afterwards, he was CTO at Concert Technology, a technology incubator and intellectual property company with a focus on mobile, social and digital music services.
“The world has gone social, but music has been largely left behind. That’s a real gap,” explains Katz, as to why the founders wanted to build Playlist in the first place.
“Ever since we started listening to music from our mobile phones, it’s become an isolated experience. And music is the number one thing we do on our phones,” she says.
The idea they came up with was to unite music and messaging by synchronizing streams, so people could listen to songs together at the same time and chat while they do so.
During last year’s beta testing period, Playlist (which was listed under a different name on the App Store), saw a huge number of engagements as a result of its real-time nature.
“Out of the gate, we saw 10 times the engagement of Pandora. People have, on average, 60 interactions per hour — like chats, likes, follows, joins, adds and creates,” Katz says.
Under the hood, the app uses a lot of technology beyond just its synchronized streaming. It also leverages machine learning for its social recommendations, as well as collaborative playlists, large-scale group chat, and behavior-based music programming, and has “Music Match” algorithms to help you find people who listen to the same sort of things you do.
The social aspects of the app involves a following/follower model, and presents playlists from the people you follow in your home feed, much like a music-focused version of Instagram. A separate Discover section lets you find more people to follow or join in other popular listening and chat sessions.
At launch, the app has a catalog of more than 45 million songs and has a music license for the U.S. It plans to monetize through advertising.
The core idea here — real-time music listening and chat — is interesting. It’s like a Turntable.fm for the Instagram age. But the app sometimes overcomplicates things, it seems. For example, importing a playlist from another music app involves switching over to that app, finding the playlist and copying its sharing URL, then switching back to Playlist to paste it in a pop-up box. It then offers a way for you to add your own custom photo to the playlist, which feels a little unnecessary as the default is album art.
Another odd choice is that it’s difficult to figure out how to leave a group chat once you’ve joined. You can mute the playlist that’s streaming or you can minimize the player, but the option to “leave” is tucked away under another menu, making it harder to find.
The player interface also offers a heart, a plus (+), a share button, a mute button and a skip button all on the bottom row. It’s… well… it’s a lot.
But Katz says that the design choices they’ve made here are based on extensive user testing and feedback. Plus, the app’s younger users — often high schoolers, and not much older than 21 — are the ones demanding all the buttons and options.
It’s hard to argue with the results. The beta app acquired more than 500,000 users during last year’s test period, and those users are being switched over to the now publicly available Playlist app, which has some 80K installs as of last week, according to Sensor Tower data.
The company also plans to leverage the assets it acquired from the old Project Playlist, which includes some 30 million emails, 21 million Facebook IDs and 14 million Twitter IDs. A “Throwback Thursday” marketing campaign will reach out to those users to offer them a way to listen to their old playlists.
The startup has raised $5 million in funding (convertible notes) from Stanford StartX Fund, Garage Technology Ventures, Miramar Ventures, IT-Farm, Dixon Doll (DCM founder), Stanford Farmers & Angels, Zapis Capital and Amino Capital.
The Palo Alto-based company is a team of six full-time.
Playlist is a free download for iOS. An Android version is in the works.
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Here’s why Spotify will go public via direct listing on April 3rd
Spotify explained why it’s ditching the traditional IPO for a direct listing on the NYSE on April 3rd today during its Investor Day presentation. With no lockup period and no intermediary bankers, Spotify thinks it can go public without all the typical shenanigans.
Spotify described the rationale for using a direct listing with five points:
- List Without Selling Shares – Spotify has plent of money with $1.3 billion in cash and securities, has no debt since it converted that into equity for investors, and has positive free cash flow
- Liquidity – Investors and employees can sell on public market and sell at time of their choosing without investors shorting a lockup expiration, while new investors can join in
- Equal Access – Bankers won’t get preferred access. Instead, the whole world will get access at the same time. “No underwriting syndicate, no limited float, no IPO allocations, no preferential treatment”.
- Transparency – Spotify wants to show the facts about its business to everyone via today’s presentation, rather than giving more info to bankers in closed door meetings
- Market-Driven Price Discovery – Rather than setting a specific price with bankers, Spotify will let the public decide what it’s worth. “We think the wisdom of crowds trumps expert intervention”.
Spotify won’t wait for the direct listing, and on March 26th will announce first quarter and 2018 guidance before markets open. It also announced today that there will be no lock-up period, so employees can start selling their shares immediately. This prevents a looming lock-up period expiration that can lead to a dump of shares on the market that sinks the price from spooking investors.
It’s unclear exactly what Spotify will be valued at on April 3rd, but during 2018 its shares have traded on the private markets for between $90 and $132.50, valuing the company at $23.4 billion at the top of the range. The music streaming service now has 159 million monthly active users (up 29 percent in 2017) and 71 million paying subscribers (up 46 percent in 2017.
During CEO Daniel Ek’s presentation, he explained that Spotify emerged as an alternative to piracy by convenience to make paying or ad-supported access easier than stealing. Now he sees the company as the sole leading music streaming service that’s a dedicated music company, subtly throwing shade at Apple, Google, and Amazon. “We’re not focused on selling hardware. We’re not focused on selling books. We’re focused on selling music and connecting artists with fans” said Ek.
Head of R&D Gustav Soderstrom outlined Spotify’s ubiquity strategy, opposed to trying to lock users into a “single platform ecosystem”. He says Spotify does “what’s best for the user and not for the company, and trying to solve the users’ problems by being everywhere.” That’s more shade for Apple, who’s HomePod only works with Apple Music despite customers obviously wishing they could play other streaming services through it.
By now being baked into a wide range of third-party hardware through the Spotify Connect program, Soderstrom says Spotify gets a more holistic understanding of its listeners. He declared that Spotify has 5X as much personalization data as its next closest competitor, and that allows it to know what to play you next. He cheekily calls this “self-driving music”.
Spotify CEO Daniel Ek giving the Investor Day presentation
Directing what people listen to turns Spotify into the new top 40 radio — the hit-maker. That gives it leverage over the record labels so Spotify can get better licensing deals and favorable treatment. Now over 30 percent of Spotify listening is based on its own programming through featured playlists, artists, and more.
There’s plenty of room for Spotify to grow. Only 12 percent of the 1.3 billion payment-enabled smartphones in the world have a streaming music subscription and Spotify makes up half of those. And with the free tier, Spotify has the best way to capture people tip-toeing into streaming.
Wall Street loves a two-sided marketplace, so Spotify is positioning itself in the middle of artists and fans, with each side attracting the other. It’s both selling music streaming services to listeners, and selling the tools to reach and monetize those listeners to musicians. That’s both on its platform, and using its targeting and analytics info to deliver efficient ticket and merchandise promotions elsewhere. Ek discussed the flywheel that drives Spotify’s business, explaining that the more people discover music, the more they listen, and the more artists that become successful on the platform, and the more artists will embrace the platform and bring their fans.
Yet with music catalogues and prices mostly similar across the industry, Spotify will have to depend on its personalized recommendations and platform-agnositic strategy to beat its deep pocketed competitors. Music isn’t going away, so whoever can lock in listeners now at the dawn of streaming could keep coining off them for decades. That’s why Spotify not raising cash for marketing through a traditional IPO is a strange choice. But with its focus on playlists and suggestion data, Spotify could build melodic handcuffs for its listeners who wouldn’t dream of starting from scratch on a competitor.
You can follow along with the presentation here.
For more on Spotify’s not-an-IPO, check out our feature piece:
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Going public pits Spotify’s suggestions against everyone
The secret to Spotify’s public market debut is actually an acquisition it made in 2014. The Echo Nest was powering music recommendations for Beats Music, Rdio, Vevo and iHeartRadio before Spotify pulled it out from under them by buying it for a reported $100 million — 90 percent in Spotify equity. That deal paid off big time. Read More
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Apple picked up talent, tech from defunct music startup Omnifone in August
As the race continues to pick up more subscribers for streaming music services, TechCrunch has learned that one of the most prominent players in the field quietly picked up some talent and tech to advance its position. Apple hired at least 16 employees and purchased select technology from Omnifone, an early player in streaming music services that filed for bankruptcy this summer. The… Read More
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Spotify > YouTube as audio streaming surpasses music videos
Audio didn’t quite kill the video star, but it’s making a comeback. Americans are now on-demand streaming more songs as audio than they’re consuming through music videos. The shift highlights the importance of music in the battle for mobile profits, plus it could help artists get paid more.
Analytics provider BuzzAngle Music tells TechCrunch that since the start of 2016… Read More
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Apple returns fire on Spotify, calling out ‘rumors and half-truths’ over App Store rejection
The dispute between Apple and Spotify over subscription revenues continues today with a letter from the former accusing the latter of using “rumors and half-truths” to advance “unfair and unreasonable” demands. Pandora raises its social media game with AMPcast, DIY audio messaging for artists
While Spotify is acquiring startups expand its messaging and social features, Pandora is also raising its game in the artist-to-fan communications sphere for musicians to better target Pandora’s 80 million users. Today, the music streaming company is launching a service called AMPcast — a service to let musicians “speak to their fans” by way of audio messages… Read More
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