Spotify has concluded its second day of trading on the New York Stock Exchange with shares closing at $144.22, down 3.2% on the previous session. So far it’s been a relatively smooth start for its new life as a publicly listed company – but it also means closer scrutiny as the streaming giant maintains its strategy of growth over profits, at least in the near future.
Here, Music Week looks at the looming issues for Spotify and potential impact of the IPO…
What will Spotify do with its IPO cash?
One of the weird things about this is that there probably won’t be much of a capital benefit for the company. The direct listing means Spotify is effectively moving its private stock to the public market, rather than selling new shares. This gives original investors the chance to cash out, but means the proceeds will not find their way back into the Spotify coffers – although the likelihood is the company will be much more valuable after the process than it was before, which brings its own financial clout. Still, while CEO Daniel Ek and other initial stakeholders could make a huge amount of money, it’s unlikely to yield the sort of catch-up cash that Spotify needs to see off the challenge represented by the deeper pockets of Apple and Amazon. Major label execs note that that competition is fiercer than ever, with Apple Music growing faster than Spotify in America and some other markets. But they also point out that such competition, while potentially problematic for Spotify, is exactly what the music biz needs. Win-win for labels.
Will Spotify change its ways?
Like most tech companies, Spotify has long had an “our way or the highway” attitude. They have, by and large, won the music business round to their way of thinking. But the financiers might be harder to crack. Spotify doesn’t seem to be making a big play for institutional investors but if such companies do buy shares, they’re unlikely to be impressed with a business model that still pays out more than it takes in. Also, music biz insiders highlight Spotify’s hiring binge and its willingness to splash the cash on everything from fancy new offices to conferences in exotic locations. The City doesn’t mind extravagance when companies are making billions. When they’re losing them (Spotify lost over $1bn last year)? Not so much. The music biz will also resist any further attempts to drive rates down. Which means Ek might have to find another way after all.
What will the labels do with their stakes?
Spotify won’t be the only ones wondering what to do with their shares. Sony Music has already sold a chunk of its shares. The three majors and Merlin all own equity stakes and have pledged to pass any windfalls on to rights-holders. But cash-in too early and artists could complain they’ve missed out if the stock rises. Sit on it too long and, if the stock falls, artists will again have something to complain about. One insider points out major labels are unlikely to want to become investment banks for their artists, so the smart money’s on stakes going sooner rather than later. But even then they’ll have to work out how to distribute it, and on what basis. Special good luck to the indies: as one independent exec notes, first Merlin has to divvy up its stake amongst the members, then the labels have to work out what to pay their artists. That sound is the industry’s accountants and lawyers rubbing their hands...