
Spotify raises $1B in debt with devilish terms to fight Apple Music - rezist808
http://techcrunch.com/2016/03/29/stream-with-the-devil/
======
rdli
Not sure why it's so devilish. They basically raised $1B in cash on a 20%
discount, no valuation cap. Basically, they're agreeing with the investors
that they can't figure out a valuation for the company -- so they're deferring
that until an IPO and have the public market sets the valuation.

There's a lot of bellyaching here about the dilution for the existing
shareholders. But I don't see how that's any different from an equity raise --
you're still diluting.

Now, the risk with convertible debt is that there's no valuation FLOOR so the
company is betting on itself to execute -- and if they miss expectations,
that's a problem.

The different lockup period is a bit of a concern, but the reality is that no
institutional investor can sell a 10% (or whatever) stake in a public company
overnight. So they capture a little bit more upside but it's not that material
in the scheme of things IMO.

~~~
bentlegen
> the reality is that no institutional investor can sell a 10% (or whatever)
> stake in a public company overnight

They can, however, sell much of it during the 3 month head start they will
have over everyone else.

~~~
twoodfin
Sure, but isn't this whole deal premised on the notion that if investors want
to head for the exits 3 months after the IPO, Spotify (and its employee
shareholders) are fucked anyway?

I agree it has to have some diluting effect, but if this capital is the
difference between a successful IPO and a failed one, I'm not sure how you
argue it represents a loss of value to employees.

~~~
Retric
If 80+% of your assets are in just one company you don't control then you
really should be heading for the exits.

Google quickly hit 6x there IPO, but if you had say 5 million at IPO and
nothing else then selling 1 million of that would have been a really good
idea. Or at least getting a put option to sell near the IPO price.

Granted, you must pay taxes ect. But taking 20% off the top is generally a
really good idea.

~~~
dopamean
Who said 80% of any of the investors assets are in just one company?

~~~
hinkley
My first rodeo, my existing options were worth about $40k on buyout day.
That's chump change, even counting inflation, but I was a kid so that more
than doubled my assets. Everybody was pretty happy. Five months later we were
all almost under water, and half our raises were more stock options (I don't
know what kind of psychadelic drugs come up with that plan). Nobody was happy
and productivity tanked. And still we were doing a better job than our new
masters. By the end of the lockup period our options were worth 60% of the
strike price.

In the end I learned the hard way about a bizarre strategy for keeping your
company going. First, have a high valuation. Second, find a small company with
liquid assets. Third, buy out the company with a stock swap and only a little
cash. And now you have more capital on hand so you can lie to your investors
for a few extra months.

Not that I'm bitter.

------
owenversteeg
Jesus Christ, that's not clickbait, those really are devilish terms. It's
debt, they lose $200MM of shares at the time of IPO, and they very well could
end up paying 15% interest yearly on this. And when the IPO happens, if it
follows the general IPO trend and tanks at first, it's very possible TPG and
Dragoneer will want to get out -- dumping 1.2 billion of Spotify onto the
market and absolutely destroying the share price three months before employees
can sell.

Let's say they have a $8.5 billion IPO and they decide to sell: suddenly, 15%
of their company was just dumped onto the market. There's no way they could
survive that.

~~~
TheOtherHobbes
Is there any kind of business case for this - besides what looks like blind
panic?

Spotify raised $500m last year. Now it seems to think it needs to nearly
double its existing > $1bn funding/debt pile so badly it's willing to settle
for a loan-shark mugging.

I'd guess the money isn't needed for new customers - more to stay afloat long
enough to have some hope of getting to IPO and allowing the investors to get
some of their money back before the office burns down.

Spotify would literally need to double its subscriber base to make this debt
viable, and that doesn't seem likely.

~~~
late2part
They clearly believe that they will die without this, and the wound taken
allows them to survive.

~~~
neffy
I rather suspect they know they will die without this, and the more astute
also probably realise they will die with it, but in the interim they can
continue to draw good salaries and bonuses.

And for the institutions in the loan agreement that are banks, all they're
doing is some extra book keeping to raise the money involved.

------
joshjkim
"TPG and Dragoneer can sell their shares just 90 days after the IPO, before
the 180-day lockup period ends for Spotify’s employees and other investors."

Among many the bad terms disclosed in the article, IMO this is probably the
worst - basically, this right is a license to cash out and torpedo the company
within 3 months (just the right amount of time to see how the market reacts to
Spotify's first earnings call as a public company..), leaving the other
investors (and employee common stock holders!) with greatly devalued stock.

Of course they have a disincentive not to do this: if they did start to sell
after 90 days, the stock would start plummeting before they could sell all
shares, so the last shares that TPG/Dragoneer sell would be worth much less
than the first bucket of shares, but if they do sell it means that things are
very, very bad and they'd rather cut their (20% discounted...) losses, and
will be much, much better off than the other investors and employees 3 months
later.

godspeed Spotify!

~~~
draw_down
Surprise surprise, employees lose out again. But I guess they were already in
danger of getting nothing if this is the deal management struck.

~~~
joshjkim
Ya - sucks. I said this in a comment below, but also relevant here: capital >
labor

~~~
randomThoughts9
Well, in this particular case employees wanted to play the capital game. It's
not a nice game it seems.

------
philliphaydon
Spotify waste so much money on their employees, who effectively do very
little. I know a designer who has been there 2 years, basically sits in
meetings and gets sent to different countries, and has added nothing to their
portfolio. Yet gets reviews and raises and bonuses... Then there's all the
parties they host for their employees, etc.

It's not a company I would invest in if I had any money to begin with.

Also that's not to say they all do nothing, some of the talks I've listened to
from their Engineers are fascinating and have learned heaps. But it was a
shitty decision to ditch the desktop app and rewrite it with no functionality
.

~~~
criley2
The modern desktop app is at a point where it's pretty solid, but I still miss
that old 0.80.x branch or whatever the final non-chromium verison was.

But you know what? Google doesn't have a desktop app for Google Music. Amazon
doesn't have a desktop app for Amazon Prime. Apple doesn't have a desktop
version... so yeah, despite the fact that Spotify's only-one-in-the-business
desktop app isn't perfect, it does exist... (and I do use it every day between
Android and two desktops and I think it works pretty ok)

~~~
mbrock
Pretty solid is a bit of an exaggeration in my case.

About once a day, my MacBook's fans start spinning like crazy. By now I
know... oh, it's "Spotify Helper" stuck in a loop again, lemme force quit it.

Before I reinstalled, instead Spotify would show me "there's a new version!"
every single day, seemingly without upgrading anything.

These serious quality issues, plus the horrifying visual ads (for playlists
and new albums) make Spotify a product I kind of love to hate.

I mostly dig the iOS version though.

But I'm still angry with how these services transform the idea of "music
player" into "streaming client hooked into the commercial music industry."

~~~
criley2
* I use PC, which runs it flawlessly.

* I pay for my streaming music which has no ads so I don't get a freebie AND complain about advertisements (really man...?)

~~~
mbrock
Nice that it works well on PC for you!

Yeah, I'm a paying Spotify customer and have been for years. You misunderstand
which ads I'm talking about.

~~~
criley2
I guess I do misunderstand which ads I'm talking about since I have an ad-free
experience.

~~~
mbrock
I mean this stuff:
[http://i.imgur.com/qb36KVA.png](http://i.imgur.com/qb36KVA.png)

~~~
criley2
That is called "Content".

Hilariously, this exact website could not stop fawning over Apple Music's
nearly identical curated, editor-created or automatically generated content.

Personally, I love the Spotify curated content.

I listen to my Discover Weekly every single Monday and very often choose one
of their regularly changing playlists when I'm not listening to my own lists.

~~~
mbrock
I don't claim to represent this website and I didn't fawn for a second over
Apple Music...

~~~
criley2
If we're playing the "who claimed what game" then I didn't claim you
represented this website nor did I claim you fawned over Apple Music.

I was providing what I found to be humorous context regarding the content you
derided as advertisement (I'm a bit surprised that curated channels of music
are ads to you, do you think that television "Channels" are advertisements for
television content too ??)

~~~
mbrock
Okay...

Well, I just don't understand why it's hilarious that "this website" liked
Apple Music's curated stuff, as a context for me not being a fan of Spotify's
curated stuff. To me it's just like, a bunch of people liked this one thing,
and now I dislike this one other thing, ha ha?

Here's Spotify's Chief Revenue Officer glowing about the advertising potential
of their curated playlists:

> “Music is an integral part of life, day in and day out,” said Jeff Levick,
> Chief Revenue Officer, Spotify. “Our new targeting solutions based on rich
> behavioral insights combined with our global footprint in 58 markets give
> brands unprecedented ways to reach streaming consumers.”

[https://press.spotify.com/se/2015/04/16/spotify-launches-
pla...](https://press.spotify.com/se/2015/04/16/spotify-launches-playlist-
targeting-for-brands/)

Sure, I pay to avoid the actual jingles, but the playlists are still part of
their advertising program. And yeah, I think placing these suggested playlists
in my visual field every time I launch the app constitutes a form of
advertising.

Mostly though I just have a visceral aversion to the copy they use. They give
me the same bad feelings as when I look at billboards or hear radio jingles.
Right now it's suggesting me to "go out and own this day like if you were boss
of the world." I would prefer to use a Spotify client without this stuff.

------
estreeper
This doesn't seem that surprising.

    
    
      2014 Revenue: $1.3 billion (up 45% from 2013)
      2014 Net Loss: $197 million (up from $68 million loss in 2013)
    

That's a lot of money to be bleeding and losses are increasing even as revenue
grows. If you wondered why they got terms like this, that would explain it.
You can call it getting "strategic resources" if you like, but I call it
running out of cash.

[http://www.nytimes.com/2015/05/09/business/media/as-
spotify-...](http://www.nytimes.com/2015/05/09/business/media/as-spotify-
expands-revenue-rises-and-losses-deepen.html)

~~~
jevinskie
Is this because their product offering is not as good as their competitors? I
switched to Spotify over services like streaming radio (Pandora) and cloud
music storage (Amazon Music) a couple of years ago. Haven't looked at the
competition much since. I heard that Apple Music, the one potential competitor
I was considering switching to, was buggy. I've been frustrated with Spotify
bugs in the past but have found that I've adapted and most have been removed,
so I never switched. Are the quality of the services really represented in the
company's valuation?

~~~
p4wnc6
I discontinued my Spotify service about 18 months ago because I went through
the process of deleting my Facebook account, and the backend Spotify account
was linked to it.

It turned into a pretty unexpected ordeal, I had to call Spotify customer
service, they asked me if I could reactivate my Facebook account just for
this, have them "fix" it, then deactivate again, etc. At the time Spotify
Linux support wasn't very good either (don't know about now).

Anyway, I switched to Amazon Prime Music because I was already a Prime
customer and figured that paying nothing beyond the Prime subscription was
perhaps better than paying $8 or whatever Spotify's rate was then.

I am really glad that I did it. Amazon Prime Music has consistently worked
extremely well for me on iPhone and iPad and in browser. With standard AT&T 4G
service, even here in rural Indiana, I have no trouble streaming from Amazon
when I go running.

The major downside is that their music catalog is not as comprehensive as
Spotify. But I've found that there are only a handful of artists that I really
love which I can't listen to yet on Amazon (Beirut being the one that I really
miss).

The catalog is very large though. They have any type of music you're looking
for, from country-western to African to the latest and greatest unheard-of
indie artist. They just don't have exhaustive coverage of all of them.

If you are an extreme audiophile type and you really need to have completely
exhaustive coverage of every possible artist, then Amazon won't work for you.
But if you try out Amazon and find that it mostly covers the artists you enjoy
and you don't really need the exhaustive coverage, _and_ you happen to
subscribe to Prime, then it's a great option.

Full disclaimer: I am not a fan of Amazon in general, but I am a fan of good
products, and for casual music streaming from most, but not all, artists, I
think Amazon is probably the best service available right now.

The way I break it down:

Spotify --> You require on-demand access to absolutely every imaginable
artist, you enjoy heavy integration with social media clients.

Apple --> You may want to purchase the music, house it in iTunes, and own
fully offline copies (not just caching, which other services can do too).

Amazon --> You're more casual about it than either of the above cases and you
already have Prime. You either mostly listen to Top 40 stuff, or else for the
less common stuff, you verify ahead of time that Amazon offers a catalog in
that area that's good enough for you. You probably don't care about owning the
music, but you still can purchase it via Amazon if you want to.

~~~
tomjen3
Spotify doesn't have every conceivable artist. They do have a fairly
comprehensive coverage, but until recently they didn't even have Rammstein.

They are probably the best still in the business, but the only company that
had everything, including the really obscure indie artists, were Grooveshark.
Though expecting Spotify to have obscure Filk songs about 40 year old scify is
probably asking too much.

------
DanFeldman
How can early employees defend themselves? What stock structures, if any,
fight against this? Is there nothing possible common stock holders can do to
protect themselves aside from pray the founders have some shred of morality?

~~~
jvm
Note that the founders interests are aligned with the early employees, they
are all taking an equal haircut. Either (a) the founders are sacrificing
themselves for the sake of the company which means they were already in dire
straits or (b) they actually believe that this will be a net positive for the
value of common shares, e.g. by avoiding a down round.

Well, actually, (c) the founders have lost their controlling interest and are
being strong-armed by early investors, but early investors' preferred share
privileges are usually not very helpful by this point.

~~~
jacquesm
> Note that the founders interests are aligned with the early employees, they
> are all taking an equal haircut.

I disagree. The founders definitely have an important stake in the outcome but
_they_ stand to get very wealthy if it works out and early employees will - in
most cases - make back a premium on the lower wages they took because of stock
options (which you should never do) and the extra hours they put in to make
the company a success.

Note that simply because of the asymmetry between the potential pay-out the
goals are not aligned.

Superficially, yes, they are aligned because if the founders get nothing the
employees will also get nothing but employee options are not the same as
vested founder shares and employees could easily be 'under water' based on the
value of their options being lower than the amount of money they left on the
table by choosing this particular employer rather than a more established one.

So for founders the incentive to gamble is much higher (all-or-nothing), in
fact I'd argue their goals are roughly the same as early (seed round)
investors rather than early employees, once they decide to take on venture
capital. The pressure will be on to go home-run-or-bust.

Note that the deal outlined above is exactly one of those. Conservative
founders running a profitable business would not gamble like this, but since
it doesn't matter any more the only way they will get anything out of this is
the home-run and what's good for the employees is no longer relevant to the
management that inked this deal (for employees it might actually be better to
jump ship at this stage because the 'bust' scenario is a lot more likely with
this much pressure than without).

~~~
Trundle
I don't understand where you're saying that employees aren't also going for a
home run or bust outcome. That's exactly what they signed up for when they
took that job instead of with a more established company.

"Bust" is the most likely outcome when you sign up to work for a startup, so
unless their goals/wants have changed I don't see why they'd want to jump ship
now.

~~~
jacquesm
The Spotify that raised it's initial round has a completely different risk
profile than the Spotify that exists today.

Employees as a rule are not looking at the company in the same way that
investors and founders do. If you have evidence that employees as a rule
understand the amount of risk involved and that they understand fully that the
most likely value of their stock options is zero then I'm definitely all ears.
But that's usually not how it's being sold.

In fact, it is sold along the lines of 'we're not going to pay you your market
rate _but_ you have quite a bit of stock (in reality .000001% (or some other
rounding error)) if you work really hard for the next 4 years YOU TOO WILL BE
RICH. But the number of employees that actually do end up like this is small.
Still larger than the number of founders but the founders really will be rich,
the employees are lucky if they make up for their lost income.

Of course some employees will be more savvy than others and will negotiate a
wage that reflects the reality of start-up life but more often than not the
employees accept (substantially) below market wages in return for a bunch of
empty promise. Feel free to blame them for not being informed, but to claim
they have 'the same incentives' is definitely not the case in my experience.

~~~
Trundle
I don't think blame is relevant, they haven't done anything wrong, just
potentially not ideal for themselves. If you're coming from the point of
thinking that you know better than the employees on how to achieve their
goals, and that they shouldn't be gambling their time hoping for a hugely
successful company, then your argument does make sense.

However if that's the case, it looks like you've just used a lot of words to
effectively say "Accepting equity as payment for working at a startup is a
poor decision so therefore employee interests were never aligned with those of
the founders".

~~~
jacquesm
> If you're coming from the point of thinking that you know better than the
> employees on how to achieve their goals, and that they shouldn't be gambling
> their time hoping for a hugely successful company, then your argument does
> make sense.

I'm perfectly ok with it _if_ employees were actually given all the relevant
bits of information and if they actually were aware of all the potential
outcomes. There is a lot of selling going on here that I'm not ok with.

And yes, I've used a lot of words to say exactly that. Thank you for putting
it more concisely, the risk:reward ratio for employees and founders is vastly
different. Founders 'risk everything' but looked at in a different way
founders risk just as much - their time, and the potential upside for a
founder is much, much larger than for an early employee.

Oldest game in town.

------
Negative1
This is significant. It shows a do or die attitude and a fact that many
companies at this level are not self-aware enough to recognize; that their
competition (Apple) will kill them, or, they will dominate this space.

Will be interesting to see how this plays out.

~~~
themartorana
It helps that Apple Music has been relatively terrible from the start. I fully
expect them to get significantly better, but after Rdio died (RIP, and I got
over my mourning) I did the Apple Music trial plus a couple months. Both the
wife and I found it incredibly difficult to navigate and understand. Spotify
has been much, much better.

That said, Apple Music is only going to get better, and fast.

~~~
matwood
It's odd to me how Google Music is not often mentioned. It is either Spotify
or Apple Music. I quit Spotify years ago when Google Music started, having
never really cared for Spotify.

~~~
prostoalex
Same here. I switched to Google Music via their $1 intro offer, and so far
haven't bothered to look anywhere else. They throw in an ad-free YouTube, so
Google's offering is strictly better in that regard.

------
Gustomaximus
The value seems OK if there is a good IPO (>10 billion) in the near future. I
think the issue is now Spotify largely HAVE to IPO quickly and successfully.
This is a big risk as with the current bear market that could easily
deteriorate further creating a situation where the business would be better
waiting for for a few years. And they are now cornered into not taking an IPO,
or not taking it at great cost.

And I wouldn't put it past Goldman to use background influence to delay the
expected listing to get themselves ever favorable terms by adding a few years
to the process. I'd be interested to know the cap on the share price discount
that goes up 2.5% every extra six months. And what would happen in a private
buyout? Is this deal a poison pill against not listing from management?
Possibly management want to ensure this listing happens largely no-matter what
markets do.

Maybe I'm a skeptical person but it seems there could be rationale to this
deal we dont see. I know Spotify are struggling to compete on the growth of
paid subscribers. Maybe this is managements way to get a profitable exit
before the struggling financials really show and markets get more rational on
unicorns.

~~~
LoSboccacc
IPO during difficult times are a sure way to bust the valutation. Especially
if you IPO after peak growt.

------
ohitsdom
I have no idea about financial terms so not commenting on that, but as a
product Apple Music doesn't even compare with Spotify. Apple Music is garbage.
I made it 3 days into their free 3 month trial before moving on to try Google
Play Music. Google's isn't bad, but for me Spotify is clearly the best of the
bunch (curated playlists, great discoverability, lots of variety). Apple Music
was really buggy both on an iPhone and Windows PC using iTunes. You can't just
play all top songs nonstop, playback randomly stops, it's slow and just feels
clunky navigating around.

Only reason I tried out competitors is to try and save money, but after my
trial with Google Play Music I'll just commit to Spotify at full price.

------
tschellenbach
* 1 billion in convertible debt * 20% discount, no cap * discount increases by 2.5% every 6 months after the first year * 10% interest * converts when Spotify IPOs * 90 lockup after IPO (instead of 180)

------
sulam
This is a pretty horrible deal. I'm glad I don't have to work in that
industry, it's basically a strip mine that's leaching off toxic waste into the
environment now.

~~~
justinlardinois
I can't tell if you're using a convoluted metaphor or you meant to comment on
the fracking article that's also on the front page right now.

------
marcoperaza
> _By raising debt rather than equity, it doesn’t have to worry about poor
> signaling from a down-round raised at a lower valuation than the $8.5
> billion it set in June 2015._

How is the signaling from this any better? It still plainly reveals that the
previous valuation is not representative of reality. The only difference is
that we don't have another imaginary number to outright replace it with. And
can we all agree to stop parroting valuation numbers based off investors
buying preferred stock?

~~~
rdli
There is no valuation in this round. There is no cap. It's just a discount off
of a valuation in the future. I would imagine the conversation was "the market
is gyrating so much we can't agree on value" so let's defer the valuation
until later, and we'll give the investors a 20% (and possibly larger) discount
once the public markets establish a valuation.

I don't see a signaling issue here.

------
nperez
Is it really just Apple? They have money to throw around, but not a well
received product yet. Meanwhile, there's Play Music, Youtube Red, Soundcloud,
Pandora, Bandcamp..

Things could change, but right now I think Google is more competitive because
they offer two bundled services that are both superior in design (IMO). If
Soundcloud can survive financially, they are very competitive for those
seeking music discovery.

~~~
jzymbaluk
You're right, I think people severely overlook Google Play Music when they
talk about online streaming services. It's close to the same price as all the
competitors, but the music library is much more thorough. I listen to some
semi-obscure music and I've had trouble finding some of the bands and albums I
like on Spotify and apple music, but I've never not been able to find an album
on either Play Music or YouTube. Plus ad-free videos on YouTube mobile is a
very nice extra feature

~~~
matwood
> I think people severely overlook Google Play Music when they talk about
> online streaming services.

I just mentioned this above. It always seems to be Spotify this or Apple Music
that. Play Music works great, and is even better that I'm grandfathered in at
$7.99/month beta price.

------
beatpanda
It's going to be a huge bummer if Spotify goes out of business -- I pay for
Spotify Premium, I absolutely love it, and their clients for Linux and Android
are fantastic. I have a strong suspicion that Apple is not going to let me
listen to music on the devices I own.

~~~
unfletch
> I have a strong suspicion that Apple is not going to let me listen to music
> on the devices I own.

You're probably right about any Linux devices, but there's an official Apple
Music app for Android you can install right now:
[https://play.google.com/store/apps/details?id=com.apple.andr...](https://play.google.com/store/apps/details?id=com.apple.android.music&hl=en)

------
iamgopal
At this scale, debt is always bad option. There are not many company in the
world which can repay more than 1billion$ with interest. The demand of debt at
this level is so low, that either they should be doing it at pretty low
interest rates or not at all.

~~~
jalonso510
It's debt but it's pretty clearly meant to convert into equity not be re-paid.

~~~
toomuchtodo
Spotify will never be worth enough for that converted equity to be worth the
cost.

~~~
jalonso510
Well if they ever IPO at all, it sounds like these guys get 20% off the IPO
price so have a decent gain built in no matter what Spotify is worth at that
time. Assuming the description in the article is correct.

------
Matt3o12_
Maybe they should have added an Apple Watch app when the watch was released.
I've paid for premium for over 2 years but switched when I got my watch
because there was no app for Spotify (only third party apps that don't support
offline listening and don't integrate very well either). Anyways, I'm now glad
to have switch to Apple Music because they seem to have more content (at least
more content I like) and their radio algorithm is way better. There are some
major flaws with Apple Music but all in all, the experience is just better
IMO.

If Spotify were to improve these issue maybe they could get more paying
customers but these improvements should not cost $1B.

~~~
adaml_623
It's a pity that they didn't make an app for the Apple Watch but I think if
you put yourself in their shoes then you might be be able to figure out why
they would not choose to do that. I'm thinking it's not a large market, it
probably has a high proportion of Apply loyalists, and it's supporting a
competitors product.

------
ktRolster
One company I worked for used credit cards to make payroll instead of going
for another round of funding. Weirdly, that worked out for them, and they sold
with a profit (for everyone that had stock).

~~~
hodgesrm
Credit cards work if you are evening out cash flow. For example, if you have a
good rate of receivable collection but variation in the timing of payment
credit cards are way less hassle than other approaches like factoring or doing
something like taking venture financing, which tends to come with pretty
onerous terms.

------
patmcguire
Box survived something like this, although they're below IPO price.

------
smilekzs
I find this (Apple directly competing with apps on its platform) mentally
disturbing as it reminds me of 15 years ago when Internet Explorer 4 was sued
(
[https://en.wikipedia.org/wiki/United_States_v._Microsoft_Cor...](https://en.wikipedia.org/wiki/United_States_v._Microsoft_Corp).
) because it supposingly broke antitrust law(s).

~~~
donarb
Why disturbing? Apple is not preventing competition, they are encouraging it.

------
ibnaks
Can anyone honestly enlighten me as to why Spotify matters? I've used it once
and never got past finding anything to listen to while on SoundCloud I was
drawn in without even thinking about it and have nearly 60 songs that I
wouldn't have found otherwise. Not trolling, I want to find what they offer
since I hear about them in the news way more than SoundCloud.

~~~
arrrg
See, I personally never understood SoundCloud … it’s completely opaque to me
and I don’t understand how I would even begin to use it. I simply don’t get
it.

But I also mostly use Spotify to listen to music I already know and sometimes
get recommend stuff I like, but that’s not the primary function.

Maybe our music listening habits are just completely different? I don’t think
there is anything wrong with Spotify or SoundCloud, I just think different
people have different preferences.

~~~
pacnw
SoundCloud (and MixCloud, not related) offers a lot of home-created content,
but maybe more importantly, provide longer live and studio mix sessions by
well known (and lesser known) DJs.

~~~
arrrg
Ah, I suspected something like that. I think I’m just not into that scene, so
that’s completely meaningless to me.

If you are into that it’s probably exactly right for you and something like
Spotify would be a poor fit to your needs.

------
roycehaynes
Streaming music requires money to pay royalty fees. The more users listen, the
more money Spotify owes to record labels, artists, writers, and others who
make music possible and accessible.

It's an art (not a science) to deliver a service (for next to free), while
making a profit after paying royalties.

Spotify raising a billy debt round doesn't surprise me.

------
andyjohnson0
_" By raising debt rather than equity, it doesn’t have to worry about poor
signaling from a down-round raised at a lower valuation than the $8.5 billion
it set in June 2015."_

Anyone care to explain what this means?

~~~
nostalgiac
If they raised it as equity, they would have to give away a percentage of the
company - which gives a 'valuation' to it.

So, if they raised $1B for 10% equity, the valuation of the company's worth
would be $10B.

To avoid this hassle entirely, they raised it as 'debt'. The reason being, if
they had to give away more than 8.5% of the company for the $1B, the company's
valuation would have gone 'down' which can give off a bad vibe/look.

~~~
andyjohnson0
Thank you!

So, "down-round" == reduced valuation, and "poor signalling" == consequent bad
vibe?

------
jsprogrammer
Why would Spotify need $1B? Is most of this money used to license content?

~~~
adzm
> ... [out of] €1.08bn of revenues, €882.5m (£636m) was spent on royalties and
> distribution costs.

[http://www.theguardian.com/technology/2015/may/11/spotify-
fi...](http://www.theguardian.com/technology/2015/may/11/spotify-financial-
results-streaming-music-profitable)

~~~
jsprogrammer
Are they prepaying the royalties? Or subsidising?

------
Animats
Paid on-demand streaming is such a crappy business that it's outsold by _vinyl
records_. Selling music downloads is a real business, but streaming, not so
much.

~~~
touristtam
Digital Locker is the way to go. Who, in their right mind, thought is was fine
to pay for a "download". Valve understood that early and look where the gaming
distribution industry is at: all the big players have the same digital locker
solution, which is really just selling a license and offering the download
part for free.

------
buzzdenver
How do vesting and lockup periods mix tax-wise ? Say I have options at
$8/share, the IPO is $10, but the stock is at $7 at the end of the lockup
period.

------
nunez
I don't think Spotify can compete against Apple on this. Spotify's only
revenue stream IS music, and they don't even make revenue from that. Apple and
Google, on the other hand, have several cash cows that will keep them afloat
if their Music services fail (which I doubt they will). Apple could afford to
throw in super cheap monthly subscriptions (say, $4.99/month) to Apple Music
with every iPhone/iPad/MacBook purchase and recoup the losses through
additional product sales. Spotify doesn't have that option right now.

------
cabbeer
I really like the "for you" section in apple music, but I'll probably switch
back to Spotify because of the $5/month student offer.

------
chvid
Would Spotify able to at some point simply just pay off the debt by issuing
more stock or raise money from an alternative source?

~~~
barumrho
Sounds like that doesn't seem likely. They are just going to wait for IPO to
happen so that the debt converts, effectively deferring valuation to the
market.

------
enahs-sf
Coming soon: S-1 filing.

------
thakobyan
Woow really fight against Apple Music? There is nothing to fight against!

