All posts in “Spotify”

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”.

By directing what people listen to, Spotify becomes 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.

Spotify CEO Daniel Ek giving the Investor Day presentation

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:

Spotify tests native voice search, groundwork for smart speakers

Now Spotify listens to you instead of the other way around. Spotify has a new voice search interface that lets you say “Play my Discover Weekly”, “Show Calvin Harris”, or “Play some upbeat pop” to pull up music.

A Spotify spokesperson confirmed to TechCrunch that this is “Just a test for now”, as only a small subset of users have access currently, but the company noted there would be more details to share later. The test was first spotted by Hunter Owens.

Voice control could make Spotify easier to use while on the go using microphone headphones or in the house if you’re not holding your phone. It might also help users paralyzed by the infinite choices posed by the Spotify search box by letting them simply call out a genre or some other category of songs. Spotify briefly tested but never rolled out a very rough design of voice controls a year.

Down the line, Spotify could perhaps develop its own voice interface for smart speakers from other companies or that it potentially builds itself. That would relieve it from depending on Apple’s Siri for HomePod, Google’s Assistant for Home, or Amazon’s Alexa for Echo — all of which have accompanying music streaming services that compete with Spotify.

Spotify is preparing for a direct listing that will make the company public without a traditional IPO. That means forgoing some of the marketing circus that usually surrounds a company’s debut. That means Spotify may be even more eager to experiment with features or strategies that could be future money-makers so that public investors see growth potential. Breaking into voice directly instead of via its competitors could provide that ‘x-factor’.

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For more on Spotify’s not-an-IPO, check out our feature story:

Spotify takes a page from Wikipedia’s playbook

Spotify wants to know if you call Blur's "Song 2" the "woo-hoo" song like most people.
Spotify wants to know if you call Blur’s “Song 2” the “woo-hoo” song like most people.

Image: brittany herbert/mashable

Spotify is dabbling in crowdsourced information, taking a leaf out of Wikipedia’s book.

The music streaming platform has started collecting suggested metadata edits from its users.

Spotify has allowed listeners access to its music metadata editor, Line-In, in an effort to collect a wide range of different user responses.

In a statement, Spotify said it hopes to learn from listeners’ descriptions of music. “By experimenting with this tool, we hope to better understand how Spotify listeners interpret music, so that we can improve experiences for both listeners and artists.”

If you use Spotify’s desktop app, you’ll be able to “suggest an edit” by clicking the three little dots beside an artist, album, or song title.

Image: spotify/screenshot

Once you’re logged in, you’re able to add edits to things like explicitness, language, genre, mood and “aliases” — other ways people refer to the song.

For example, some people might refer to Blur’s “Song 2” as that “woo-hoo” song or might call “Dilemma” by Nelly and Kelly Rowland, the “no matter what I do” song.

Image: spotify/screenshot

You’re also able to edit the roles of those involved with the song: producers, writers, featured artists etc. The only elements you can’t suggest edits for are the track title, label, duration and cover image. 

Importantly, unlike Wikipedia, your edits won’t be implemented straight away, instead Spotify will collect and analyze all suggestions.

We’ll wait here while people inevitably make up the most ridiculous genres they can think of.

[h/t Variety]

WATCH: ‘Jurassic World’ is coming to life with augmented reality 8c0d 1067%2fthumb%2f00001

Going public pits Spotify’s suggestions versus 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 too 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, as it’s turned the startup from a daunting search box for 35 million songs into a personalized mixtape.

Today, in Spotify’s SEC filing to go public through an unusual direct listing, the company writes that “a key differentiating factor between Spotify and other music content providers is our ability to predict music that our Users will enjoy. Our system for predicting User music preferences and selecting music tailored to our Users’ individual music tastes is based on advanced data analytics systems and our proprietary algorithms.”

That data came from The Echo Nest. 200 petabytes of user behavior data to be exact. That’s compared to the 60 petabytes Netflix had in 2016. Spotify logs 150 billion plays, shares, skips, follows, and other signals per day that tune its recommendations.

This all powers Spotify’s popular curated playlists like Rap Caviar that consume 31 percent of users’ listening time, up from 20 percent two years ago, and the Discover Weekly algorithmic playlist that keeps them stocked with music. Always knowing what to play next has helped Spotify climb to 159 million monthly active users (up 29 percent year-over-year) and 71 million paying subscribers (up 46 percent year-over-year).

Those users are loyal, spending 25 hours per month streaming Spotify’s content. Just 5.1 percent of subscribers churn out monthly — a low rate for a subscription service which has come down from 7.5 percent two years ago. Spotify accounted for 42 percent of the global streaming in 2016, and by 2017 its subscription fees and ads earned it $4.09 billion in revenue.

But most importantly, those recommendations are what makes Spotify the go-to streaming service for serious listeners amidst an unbelievably crowded field of competition. “We believe Spotify is differentiated from other services because we provide Users with a more personalized experience, driven by powerful music search and discovery engines” writes Spotify CEO Daniel Ek in today’s letter to potential investors. With similar catalogues and playback features, its Spotify’s understanding of what we want to hear that keeps people from straying.

And there’s plenty of places to stray. Apple and Google pre-install and promote their streaming apps on their mobile operating systems, while charging Spotify a tax on subscriptions bought through its platforms. YouTube’s vast catalog of legally grey music uploads and snazzy videos appeal to younger listeners. SoundCloud offers the newest emerging artists. Amazon is using its Echo speakers and Prime subscriptions to get its music service into millions of homes. And there are still CDs, vinyl, MP3s, iTunes downloads, FM and satellite radio, and stalwart online radio services like Pandora.

But none combine the dedicated music recommendation prowess Spotify has built up with the on-demand access listeners crave and a free ad-supported tier to lure people in. “With access to unprecedented amounts of data and insights, we’re building audiences for every kind of artist at every level of fame and exposing fans to a universe of songs” Spotify CEO Daniel Ek writes in his letter to investors.

And because music lovers trust the app to tell them what to play, Spotify has managed to build up some leverage to negotiate with the record labels and rights organizations  that control the content it streams. Spotify can favor whatever music it wants, replacing top 40 radio as the most crucial hit maker in the business. And its ads and subscription revenue payouts have helped turn the music industry around after MP3 piracy and unbundled $1 singles cratered the post-CD landscape. Musicians and their management are finally starting to need Spotify as much as it needs them.

That’s the only reason Spotify can go public despite being so dependent on these rights holders. Otherwise, they could just jack up their licensing and royalty rates, and if Spotify refused to pay, they could pull their music. That’s especially worrisome for a public company with all its financials laid bare. Earn too much profit, and the rights holders would just cut it down to size. But they’ll play nice since Spotify selects what becomes popular.

Spotify CEO Daniel Ek (left) and The Echo Nest CEO Jim Lucchese (right)

The democratization of music creation and distribution necessitates a new layer of curation that Spotify wants to provide. “The old model favored certain gatekeepers. Artists had to be signed to a label. They needed access to a recording studio, and they had to be played on terrestrial radio to achieve success” Ek writes. Nowadays with so much content coming out, “artists’ biggest challenge is navigating this complexity to get heard. We believe Spotify empowers them to break through.”

To keep its crown, though, Spotify will have to stay a step ahead of everyone else’s recommendations. Its public filing lists their bigger brands, bank accounts, hardware, and app stores as significant risks. While Spotify has nearly twice as many subscribers Apple Music, the competitor is growing fast by giving away free one-month trials, paying for exclusive early access to blockbuster albums, and pre-loading the app on iPhones. Apple printed $20 billion in profit last quarter while Spotify has lost $4 billion to date.

Spotify will have to not only surface the best content, but create some too. By producing exclusive in-house audio and video, it could seduce subscribers and avoid royalty pay-outs. Spotify will have to figure out not only what we want to hear, but what we want to see. By displaying better ‘behind the music’ factoids, lyrics, slideshows, and more while we listen, it could add a unique dimension to the same songs streaming elsewhere. And it must be seen as a true ally to musicians, podcasters, videographers, and beyond. By winning their hearts, Spotify could get them to promote it as the home for their content that lives elsewhere too.

Surrounded by tech’s titans, Spotify may still be the underdog in the long-run. But by becoming the world’s DJ, Spotify has established itself as indispensable to the music industry. This jukebox sounds worth your dime.

Check out all of TechCrunch’s stories about Spotify going public, and read our feature piece “How Spotify is finally gaining leverage over the labels”

Spotify plays the long game with Family and Student Plans even as revenue per user drops

Spotify’s “Family Plan,” a variation of which launched in 2014, as well as its “Student Plan” appear to be driving a significant portion of the company’s growth and improving retention, as the company points to it multiple times in its filing for a direct listing on public markets today.

But that also comes at a cost of decreasing the amount of revenue it actually gets from each premium subscriber. In the filing, Spotify indicates that the fee for a family plan — which costs $14.99 per month — can be actualized over as many as six accounts total (though it might not always be six). The premium user consists of the one master premium account, which pays for the subscription, and up to five sub-accounts for family members. Spotify is also pointing to its student plan, which costs $4.99 a month, as another contributing factor to those pressures. This means that even though Spotify is gathering more premium users, the actual revenue it generates from those users can drop over time.

And, indeed, that’s what’s happening, according to the filing. Spotify said its premium average revenue per user was around €5.24 in 2017, compared to €6.00 in 2016 and €7.06 in 2015. Spotify recognizes in the filing (“Family Plan” is mentioned nearly three dozen times) that this is partly due to the family plan. But at the same time, churn — a significant metric for subscription services that shows how many users are coming and going — is dropping each year and the number of hours users are listening are significantly increasing. Churn was 7.5% in 2015, and it’s down to 5.1% in 2017, content hours have more than doubled in that time from 5.4 billion hours to 11.4 billion hours.

Here’s the boilerplate from the filing:

The rate of net growth in Premium Subscribers also is affected by our ability to retain our existing Premium Subscribers and the mix of subscription pricing plans. We have increased retention over time, as new features and functionality have led to increased User engagement and satisfaction. From a product perspective, while the launches of our Family Plan and our Student Plan have decreased Premium ARPU (as further described below) due to the lower price points per Premium Subscriber for these Premium pricing plans, each of these Plans has helped improve retention across the Premium Service. As a result, while Premium ARPU declined by 9% from 2015 to 2016 and 14% from 2016 to 2017, in part due to the launch of the Family Plan in 2016, Premium Churn declined by 1.1% from 7.7% in 2015 to 6.6% in 2016 and declined by an additional 1.1% from 6.6% in 2016 to 5.5% in 2017. With the growth in higher retention products, such as our Family Plan and Student Plan, we believe these trends will continue in the future.

All this is more or less part of a long game for Spotify, which is looking to go public in the U.S. amid significant and increasing competition for premium subscribers from companies like Apple or Google. Those two companies also own the App Store platform and therefore could be the decision-makers in the economics of operating on mobile devices, which means that there’s pressure for Spotify to snap up as many users as possible — even if it means making less money per user. Spotify has acknowledged in its public filing, too, that Apple and Google represent a significant risk in this sense.