One of my keenest pleasures is manicure my Spotify playlists to my immediate surroundings. For example, if I'm on the way to Kobox, I'd put a flurry of what I like to call, 'gameface' tunes together for my twenty-minute hike to the gym. Upon arrival I'm ready to climb the fire escapes, bustle on all fours across the apex roof lean back and scream Draggggggoooooo!!
So when the news broke that Spotify did a superhero landing (one fist, one knee) on the stock exchange last month, I was, pardon the pun, all ears. But before I wanted to chip in with my tuppence worth I thought I'd get into the weeds a little bit and breakdown the Spotify model.
Launched in 2008, it is a tech based freemium company developed by Spotify AB in Stockholm that allows you to stream music, podcasts, and video. Spotify earns the majority of its revenue through premium subscription (ad-free service plus higher quality audio stream) of which there is circa 70 million paid users. They then pay the record companies who in turn pay the artists, everybody's happy. Well unless you're Thom Yorke who once heralded the company as 'the last desperate fart of a dying corpse'.
Thom has since returned to the platform with his solo albums. I guess some farts smell ok right Thom? Thom's main gripe was that the money doesn't get filtered down to the artist, that the subscription fees are being swallowed by huge swathes of debt the company has encumbered in order to pay off the royalties to record companies. In September 2016, Spotify announced that it had paid a total of over $5 billion to the music industry.
So how does a company that has accrued such seemingly insurmountable debt, yet to turn a profit be valued at £118 a share? And an estimated worth of. A lot of analysts are speculating this is an inflated price that $30 billion dollars as already hit the high water mark.
“It’s certainly a strong company in regards to the service it offers,” said Jonathan Johnson, a relationship banker in Portland, Oregon told Reuters “I’d consider buying it but not at these (price) levels."
In an interview with Wake up to Money this morning Mouhammed Choukeir Chief Investment Officer at Kleinwort Hambros said "Spotify's biggest challenge is how it will face scrutiny from shareholders around its business model. It pays a lot to record companies, shareholders will demand profit so they'll pay less to the (music) companies. Certain artists have refused the platform and competitors have sprung up in place of that but not succeeded. $30 billion dollars is a 'punchy evaluation'".
For a full run down on what the insiders are speculating about the future of Spotify, Angela Monaghan wrote a very thorough and detailed account on The Guardian.
My thoughts? Unfortunately, no one got back to me when I reached out to Spotify for a quote for the article, but I'll just shoot from the hip on this one. The reason why I think this is a more sustainable platform than the likes of other IPO companies struggling (Soundcloud, Twitter yet to turn a profit) is that it listens to its audience. When Taylor Swift and Thom Yorke demurred from allowing their music to be streamed, Spotify recognised that these juggernauts could sink them if they didn't garner their trust. Both Taylor and Thom are now back on board, the argument on whether it reduces music piracy is fairly divisive. In a nutshell a commission report has stated there's "clear evidence" of Spotify reducing illegal downloads, with every 47 streams leading to one fewer bootlegged track. But then factor in how many lost sales there are due to free streaming? An interesting guy to follow on Twitter about this is Jon Fingas from Engadget an online publication for home for technology news and reviews who seem to have the lowdown.
I'll be interested in hearing your thoughts, please find below a link to my 'gameface' playlist.