Spotify now has an activist shareholder with a history of pushing for price rises

Credit: Shutterstock/Diego Thomazini

Daniel Ek has a new shareholder to keep happy – and it’s one that comes with a reputation.

According to a Bloomberg report, ValueAct Capital Management announced at a Columbia University event today (February 10) that it has acquired a shareholding in Spotify.

Spotify’s share price was up by approximately 4% in pre-trading on the NYSE this morning following the report.

ValueAct CEO Mason Morfit didn’t confirm the size of the shareholding. However, he said that, in recent years, SPOT’s “operating expenses and funding for content exploded”, but that the streaming company was “now sorting out what was built to last and what was built for the bubble”.

A Spotify spokesperson said today: “We welcome ValueAct as an investor in Spotify.”

What’s particularly intriguing about ValueAct’s position in Spotify is that the former company has a history of nudging companies it invests in towards raising consumer prices and improving margins.

As cited in a note from William Packer (MD, Media & Internet) at BNP Paribas Exane today, ValueAct took a stake in The New York Times Group last year and urged it to both cut costs and raise prices.

According to a report from Reuters published last summer, ValueAct acquired a 6.7% stake in The New York Times Group.

Its other investments, according to the ValueAct site, include companies such as Adobe, Microsoft, and Motorola.

Packer’s BNPP note suggests that “activist pressure at Spotify could accelerate plans for the group to raise core music subscription prices which remain below key peers Apple and Amazon“.

Both Apple and Amazon Music have, in the past four months, raised their standard premium subscription price in the US from $9.99 to $10.99 per month.

So far, however, Spotify has refused to join them in doing so.

How much leverage San Francisco-based ValueAct would have to influence Daniel Ek’s strategy at Spotify remains to be seen.

According to Spotify’s latest annual investor report, filed with the SEC in the past fortnight, Ek personally owned 31.7% of total voting power at Spotify at the end of 2022.

His co-founder at the Swedish streaming service (and its former Chairman), Martin Lorenzton, owned 42.6% of total voting power.

Ek owned 16.5% of ordinary shares in Spotify, according to the filing. Lorentzon owned 11.1%.

The second biggest individual holder of ordinary shares in Spotify at the close of last year was investment firm Baillie Gifford, which owned a 14.5% stake (see below).

Spotify’s shareholding structure as of the end of 2022

Spotify announced last month that it would be laying off 500 people globally.

Daniel Ek wrote in a letter to staff explaining the changes: “As you are well aware, over the last few months we’ve made a considerable effort to rein-in costs, but it simply hasn’t been enough. So while it is clear this path is the right one for Spotify, it doesn’t make it any easier — especially as we think about the many contributions these colleagues have made.”

“Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us. In hindsight, I was too ambitious in investing ahead of our revenue growth.”

Added Ek: “I take full accountability for the moves that got us here today.”Music Business Worldwide