Spotify’s investment striptease is an ugly necessity – but an insult to artists


MBW review-1Each week, The MBW Review gives our take on some of the biggest news stories of the previous seven days. This time, we take a look at the news that Spotify is looking to raise its second $500m investment in the space of seven months. The MBW Review is supported by Believe Digital. (The views in these articles are those of the writer and are not necessarily endorsed by Believe.)

It’s a good bet that at least a portion of Daniel Ek’s cornflakes ended up spluttered upon the pages of Svenska Dagbladet on Wednesday.

The Swedish newspaper broke the world exclusive that Spotify was looking to raise a new round of $500m in financing – which, if successful, would bring its investment accrual to over a billion dollars within 12 months.

There were a number of eyebrow-raising elements to the article, not least the under-reported scoop that Ek’s company now has around 28 million paying subscribers and just under 100m total active users.

Yet the biggest revelation in the story will have also been the most sickening to those artists and songwriters who currently feel under-recompensed by streaming music services.

Dagbladet reprinted passages from a secret tender document which showed the lengths Spotify was willing to go in order to get its IPO up and away.

The long and short of it: investors wishing to add to the $1bn+ stockpile of funding Spotify has already chomped through since 2008 were offered a deal by which Ek’s company would pay 4% interest on their money as a guaranteed loan.

If Spotify then floated within a year, these investors could convert their cash into stock – but not before benefiting from an additional 17.5% discount on the market-adjudicated opening share price.

If an IPO didn’t take place until beyond 12 months, that discount would then increase to a fifth.

The economics of this fiscal striptease are deliberately irresistible, suggesting Spotify needs cash, and fast.

Imagine for a second you’re a high-flying investor. (Unless you are one, in which case don’t imagine – just read this and call your broker immediately.)

Now, let’s also imagine you decide to buy all $500m of Daniel Ek’s new convertible loan notes right away – and that Spotify floats 12 months later.

Before we even begin, you’ll have earned $20m from Ek’s guaranteed 4% interest parachute.

You’re also then quids in for a further $87.5m boost from your 17.5% stock price discount (if you buy up shares with your full $500m and then sell right away – details).

Voila: you’ve just earned a $108m bonanza for literally doing nothing.

That’s more money than Adele’s record-demolishing 25 earned at retail in the US and UK last year.

None of this money will be seen by the talent whose songs made Spotify viable in the first place – the exact same talent which has been told for years to demonstrate patience in the face of unsatisfactory royalties from streaming services.

Hardly seems fair, does it?

The point here is not to fruitlessly emote about the vagaries of the rocky road to becoming a publicly traded company.

Spotify is a loss-making entity which (commendably) pumps out 70%-plus of its income to music rights-holders – one beset by threats from the likes of Apple Music and a heavily acquisitive Pandora, and artists making very public stands against its model.

To maintain its market leading position, the Swedish firm will have to use every trick in the book – and that means playing a bit dirty to bulk up its warchest.

It’s just business.

And yet, we’re talking about a day this year when new investors in Spotify will earn more than $100m, pretty much guaranteed, for doing nothing more than answering Daniel Ek’s call.

We’re also talking about a day where the major labels, who own somewhere between 15% and 20% of Spotify, get a ginormous one-hit windfall that looks impossible to attribute or audit to individual artists.

This will be a day when writers and artists, from Bieber blockbusters to one-fan wonders, collectively press their noses against the windows of Wall Street.

There, they’ll witness Spotify investors – from Coca-Cola to the man with the most appropriate name in finance, Li Ka-Shing – counting their riches.

It will be a joyous day for Daniel Ek, but a miserable, infuriating one for musicians; the people who’ve enabled his machine to change lives, soundtrack birthdays, pump up parties and give Christmas extra sparkle.

Spotify would be an empty vessel without them. It would, quite literally, be worthless.

This week’s news offered us a stark, uncomfortable reminder of who’ll grow fat when Ek’s IPO dream becomes a reality – and who’s destined to miss out completely.

The MBW Review is supported by BelievedigitalBelieve Digital, a leading independent digital distributor and services provider for artists & labels worldwide. Believe empowers artists and labels to maximize the value of their music with a full suite of services. Championing innovation and transparency throughout its ten-year history, Believe prides itself on providing tailor-made services for each label and artist. Visit for more details.Music Business Worldwide

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  • Juan Lauda

    Getting ready for a big law suit? Need to settle before a mechanicals precident is reached with unlicensed content? Has Google invested?

  • Steven Rochlin

    You have options:
    1. Remove your music from Spotify
    2. Invest in Spotify and take the financial risk / reward

    Choose either, both or none. Whining about it is a bit childish don’t you think? If you feel you can do better then start your own online music streaming service. Enzo Ferrari PO’ed Mr. Lamborghini and look at what happened. It is up to you to make a choice.

    • RS

      It’s not the artist’s choice. Record labels have control of whether an artists’s music is available on Spotify, not artists. When you sign a record deal, or a licensing deal, the rights for how your master recording is used go to the label. Unfortunately , few of us artists have the power to negotiate forms of exclusion with our labels these days.
      Artists are also not privy to the amount of money that the label is making from the artist’s master being available on Spotify. .

      • Steven Rochlin

        So the moral of the story is avoid record labels? Have a good lawyer and keep control of the masters? If an artist signs a contract with a recording label they must uphold their end of the bargain for better or for worse.

        Look, I truly do feel for the musicians as am one myself. Still, with 360 deals and other things an artist has to know they were selling their _______ to a record label. No one forces an artist to sign the contract.

        As an investor, your article has it all wrong imho. If you want to benefit then INVEST into said company. Take the risk and either enjoy the benefits… or when Spotify goes bankrupt and take the losses. I feel the writer within the article above is mixing up to distinct parts of a company.

        Think of it this way: A vinyl LP pressing plant make money from pressing my record and they should give me back some of that money because without my music there would be no record to press. That doesn’t make any sense now does it?

        • RS

          As any professional recording artist would know, it’s very difficult to market a recording successfully without going through a record label.

          • Steven Rochlin

            So there you go. With the article above the moral of the story is if you want to benefit then invest in the company and take the risk of gains or losses. Yet to expect a company to give you more money just because they worked hard and are successful is simply a non-issue per se. Thus the article above has major faults based on a false premise of entitlement that was not within the contract agreed upon by the concerned parties.

  • Mike Bebel

    How much of Google’s profits or Apple’s increase in valuation have gone to the artists? Or, Walmart’s or Best Buy’s over the years? While I understand that the value of these businesses has been built, in part or in whole, on the content supplied by the artists, there is a core economic point that they are distributors/retailers and occupy a key component of the overall value chain. For any economic system to work, each player in the value chain must have an economic incentive to participate. Otherwise, the entire model falls apart. In the digital era, the shifts in the recorded music value chain have been tumultuous to say the least. However, there is sound economic reason, for those who take risk/invest in new players in the value chain, to be rewarded for doing so. In addition, it is important for artists for there to be a number of participants competing for consumers at the distribution and retail end of the chain so that no individual distributor/retailer can gain a majority market share and thereby extract more than their fair share of the overall value.

    • Charles D’Atri

      Wall Mart and Best Buy are mass merchants for whom, even at its peak, music was a secondary line.

  • Mind-Blowing!!!

  • mylo

    a lot of the contracts were written before streaming was a thing, pus spotify let you download to your phone now but pay for streaming rights dont pay for owning the music, what a trick!