Serious questions are being raised about the subscriber numbers for Tidal, the music streaming service that is popular with top end Hi Fi owners while at the same time Spotify is tipped to delay their IPO due to a failure to sign deals with record labels.
According to Norwegian newspaper Dagens Næringsliv the audio streaming service founded by Jay-Z and several other professional musicians have been “significantly” inflating their subscriber numbers for months
Dagens Næringsliv was able to get access to the information because streaming service Wimp, now known as TIDAL, has its offices in Oslo, the capital of Norway.
When Jay-Z tweeted in September 2015 that Tidal had reached a milestone one million subscribers, the real number was allegedly closer to 350,000.
In March of 2016, six months later, when TIDAL announced that it had reached the 3 million subscriber mark, it was allegedly reporting only 850,000 subscribers to music labels, a deficit of 352%.
It’s public knowledge that Jay-Z sued the former owners of Tidal in March last year for $15 million… for “exaggerating how many subscribers the service had when [Jay-Z] bought the company.”
Tidal has not responded to requests for comment.
In the USA, there is speculation that Spotify will delay their IPO.
Businessweek claims that there’s a notion in Silicon Valley that tech start-ups are better off staying private as long as possible. “Why should visionary founders answer to impatient public investors? Better to keep tapping those ample private funds under the tutelage of a forgiving board” they wrote
Spotify who are not making money, has done well to stay ahead of Apple Music since the latter’s launch in mid-2015
Bloomberg said that initially Spotify raised $1 billion in convertible debt a year ago, it came with strict terms linked to the IPO timing, setting a stopwatch on a listing and offering the funds a sweet deal.
In the first year, the debt carried a 5 percent interest rate, so Spotify has a $50 million interest bill coming. The coupon then increases 1 percentage point every six months until IPO, up to a 10 percent limit. So, Spotify would owe another $65 million if it waited another 12 months. This isn’t chump change. To put it in context, Spotify’s R&D budget was 143 million euros ($153 million) in 2015.
Plus, the longer Spotify waits to IPO, the more shares it must accord to its borrowers when listing.
The creditors would’ve been able to convert their debt into equity at a 20 percent discount to the IPO price had Spotify listed in year one.
That discount will now increase by 2.5 percentage points every six months.
One of the problems is that Spotify has failed to finalize a new licensing deals with the big record labels. Vivendi SA’s Universal Music Group, Warner Music, and Sony, who control 80 percent of recorded music globally.
Apparently talks have been going on more than a year.
Another big problem for Spotify is that their profits are constrained by huge licensing costs. Spotify’s cost of revenue has been 81-83 percent over the past three years, largely because of these fees.
Despite a 70 percent increase in revenue in 2015, its net loss was A$242 Million.
Currently Spotify pays a royalty rate to labels of 55 percent of its sales and would like to pay less.
Another option is that Spotify could use its brand to rival the record labels by making its own content, as Netflix does with TV.
It could profitably mine the masses of data it has on user tastes.