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Spotify raises $1B in debt with devilish terms to fight Apple Music (techcrunch.com)
292 points by rezist808 on March 29, 2016 | hide | past | favorite | 226 comments

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.

When you calculate what position this actually buys the banks, assuming Spotify doesn't go bust, this loan has a 30% interest rate for the first year.

So if you calculate it out, it means the bank demanded to have their money back (at least in theory/balance sheet) in 8 months and 2 weeks. This likely allows the banks to actually take this risk (ie. defend it to their board/shareholders).

On the other side this allows Spotify to say that they've gotten a "cheap" loan, and even that they've "avoided dilution", when in reality it's a very expensive loan that dilutes quite a bit (how much depends on the valuation at IPO, but at the "current valuation" of 8.5 billion it dilutes 16%. If the valuation is less or the IPO gets delayed it dilutes more, up to 100% at about $1.4b or lower valuation, at which point shareholders and employees lose everything they have invested in the company). It doesn't keep the 30% rate over time, but I bet that came at the cost that the bank also have some way to foreclose on the loan.

Effectively to value of Spotify (money you get when buying the whole company) went down somewhere between 300 million and perhaps up to 600 million because of this deal. And that's ignoring the other loss shareholders get because of this deal, after all debt is senior to equity, there's the equity conversion and pre-selling, which is going to mean the stock price will go down a bit before any stockholder can sell.

> 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.

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.

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.

I agree. I'm not arguing that employees shouldn't cash out when they can. I'm saying that if investors as a whole are getting cold feet 3 months after the IPO, those employees were never likely to be able to recoup much value from their equity in the first place, regardless of whether these lenders get to dive off the sinking ship first.

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

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.

I think they are talking about employee shareholders.

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.

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.

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

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.

>Spotify also has to pay 5% annual interest on the debt, and 1% more every six months up to a total of 10%.

Fwiw I'm parsing this as the interest to service the debt topping out at 10% rather than 15% (which imo is a pretty big difference)

They can probably pay in kind and screw the investors more. Better than paying cash.

elaborate please? this is not my area of expertise.

In kind interest payments let the lender increase the principal balance instead of actually paying interest. In this case it would be like issuing 10% more equity per year instead of paying the 10% in cash. It wasn't mentioned in the article if they have that option, but it wouldn't surprise me.

What I don’t understand is why they are raising this money? Do they expect that they are about to get into an all out war with Apple?

All out war for streaming customers with apple and google.

Someone is going to collect $10 (plus $1 or $2 increase every couple years) per month for a huge segment of the music listening population for basically the rest of our lives. Spotify want it to be them.

Is there any reason to think that this market is a winner take all? The labels will do anything to prevent another Apple arising including backing any upstart that wants to challenge the big players. When you are just a middle man it is hard to create a monopoly.

> Is there any reason to think that this market is a winner take all?

I personally doubt it. Exceedingly few markets are winner-take-all. Plus, monthly subscribers are "sticky", so they're not going to leave overnight if one competitor gains a slight edge, and everyone else will have a chance to catch up.

Your point about the labels and streaming services as middle men is a good one too. Labels own all the content, so they have a lot of power to influence the market as well.

That entirely depends on how the power balance between content owners and streaming services develops. If labels deliberately protect themselves from a streaming monopoly by fostering competition via good deals for smaller competitors it might become a very balanced market. But if a dominant streaming service manages to press for better deals than smaller competitors, then it could be very much winner-takes-all (with some irrelevant indie for indies sake alternatives sprinkled in between). Labels might actually decide to deliberately let a monopoly happen, to keep the total annual "music tax" per listener high. Spotify is in a business where more hinges on smoky backroom deals than in arms manufacture.

I can’t see the labels being keen to let any one service get a monopoly as it risks them being played off against each other like Apple did to Sony a few years back. I do agree that the music industry is incredibly opaque and how really knows what is going on.

How could a streaming monopolist play content monopolists? There is only one place to call if you want to license a given artist and fans will tell you that you can't substitute one rapper with a different one. The music business is more about identity than about chords and rhythms. "Sorry, no hits for your search term The Beatles, but try this nice, barely used Ballad of Bilbo Baggins, you will like it because it is also old and by a famous person with a funny haircut", that won't work.

Only independent labels without established names, who need the exposure from streaming as much as they need the money would suffer from a streaming monopoly.

You need to have all, or almost all music, for people to sign up with you. I wouldn't be a paying spotify customer if it wasn't because they had almost all the music I wanted.

What we really need are a change to copyright laws that requires a mandatory uniform-fee-only streaming license for all music, tv and movies.

But they don't have all and never will. That's why I will never pay them. For me, I already have all.

Not with consumers like you they won't. If you're expecting a market to grow from nothing to mature without paying consumers until they're perfect nothing will change nor evolve.

You vote with your dollar by supporting the kinds of market you would like.

I started using Spotify in 2008 because the concept was what I envisioned for the future and iTunes was an awful practice in buying music. I thought I'd still "download" music on the side, but I honestly never felt the need for it. Sure Spotify doesn't have _everyting_, but it has an impressively huge amount of fringe music that I would never have expected and more than enough music for me to listen to until I die. And it grows.

Still waiting for competition to affect prices. Eg I would be happy to pay 5$/month for limited, ad free access to Spotify/ whatever, but 10$ seems excessive. Given that we may indeed pay this for the rest of our lifes, it's strange nobody seems to mind the cost.

As someone who buys a lot of music, this attitude seems very alien to me - 10 bucks for a very large collection? It's an insane deal - so good that hardly any artist can live off it.

Don't get me wrong - I'm not a fan of streaming services and prefer to own my music (a large part of which isn't available for streaming anyway) but for most people this is an incredibly fair deal.

$10/month when I already own a lot of music. I wasn't spending that on new music before streaming.

I've gone with Google Music for this reason - my personal collection is in the cloud for streaming purposes (saved me the hassle of a home media server) - I occasionally buy new music from various sources and upload it to my account.

Ok, got it - I use streaming in addition to buying my music, mostly as a preview hub. Maybe you stopped buying music that frequently at some point, but since I easily buy 10 albums a month the price for streaming and comfortable previewing is a fair share of that budget.

Yeah, spotify is not a great deal if you're just using it instead of your CD collection.

OTOH you can listen to hundreds of dollars worth of new music in a day if you want to, with no risk. If you pick something on a whim that turns out not to be good, just move on to the next album or artist. It's like going to a record fair with an unlimited budget, and a truck to carry your finds home in. There is a never-ending supply of crazy stuff on there.

If you use it like this, it's incredible.

I was an on and off subscriber to Rhapsody in the mid/late 2000's but was generally turned off by the idea of not owning my music because getting Rhapsody music onto a portable device meant having to pay more per month as well as using whatever terrible devices supported it at the time. Also, you would not get access to all of Rhapsody on the device, just whatever you chose to sync. So even though I would occasionally use Rhapsody, mostly as a radio/discovery tool, I was still buying music the old-fashioned way, either on iTunes, CDs, or pirating via Oink.

Once smart phones came around and data plans approached a level where streaming music wouldn't explode your bill, I think streaming became a no-brainer. It still took me two years of having Spotify before I realized I could throw away all my old CD's that were eating up space, but once I reached that point, the value of streaming, at least to me, was pretty clear.

Sure, there are gaps in the music, but I think for most people, those gaps don't exist. And even for the layperson replacing their CD collection, having a Spotify/Apple Music/etc. account means having access to their music on any device, anywhere they go. Duplicating that kind of access with a CD collection is difficult.

> and data plans approached a level where streaming music wouldn't explode your bill

Don't forget much of the world (I'm in the UK) already has generous enough data plans that many people stream without thinking twice. The US is an outlier in this regard.

yes, but it depends on your listening habits. I am oddly fine just listening to the music I own, and buying some more every now and then, so I spend significantly less than 10$/m now. Would be interesting to try a streaming service, but it would be a good deal more expensive for me.

Anyway, maybe I should try one of the free offers. :-)

I was like this before spotify, but once you can try lots of new music, I bet you'll find a bunch you like.

>and prefer to own my music

unless you wrote it and played it you don't 'own' any music.

>Still waiting for competition to affect prices. Eg I would be happy to pay 5$/month for limited, ad free access to Spotify/ whatever, but 10$ seems excessive.

No competitor can offer $5/month unless the service is positioned as a loss leader. The overwhelming costs for streaming music is the licensing and royalties of music content. In other words, if Spotify paid their programmers half the market rate salaries to save overhead costs, they still couldn't sell online music for $5/month.

If "loss leader" is a legitimate business strategy, it means only the big companies with offsetting non-music revenue like Amazon/Google/Apple can offer cheap streaming music. Companies with music-only revenue like Spotify/Pandora/Tidal would not be able to compete with that.

Then there's a problem. There is no reason music should cost more our even close to what video costs.

Are you comparing the price of Spotify to the price of Netflix? If so, it's not a remotely fair comparison. The percent of mainstream music Spotify doesn't have is miniscule to the amount of mainstream video Netflix lacks. Take Netflix and add in the cost of premium movie channels -- HBO, Starz, Showtime, etc. and you start approaching a modern catalog comparable to Spotify.

Your monthly fees are now approaching $100 per month. However, you're still left with three gaps -- old movies, recently released DVDs, and movies in theaters. Considering all this, plus Sean Parker's idea to start renting new releases for 24 hours costs $50 per movie, it's pretty fair to say that Spotify is significantly cheaper than the equivalent in videos.

But keep in mind that recent video releases are usually paywalled by movie theaters or pay channels while music is available legitimately on the radio and various online outlets. Also keep in mind that the typical cost of production for an hour of music is significantly less than an hour of video, not to mention the storage and bandwidth differences.

Piracy offers lower than $5/month (and usually better selection). Any business plan that doesn't account for piracy is fantasy.

$10 seems like an amazing deal to me. Heck, I'd easily pay $20.

Consider that the previous music "streaming" technology was radio, which was free, and $10 sounds expensive. Except that $10 a month is now the final product, and basically presents a dead end to the music sales funnel outside of concerts/collectibles.

I am still paying for my downloads because I like weird artists and I think it is an important vote that I really like their music and want them to continue producing more. That is a luxury few afford anymore.

And Amazon which doesn't have as good a library but which includes it for "free" for Prime customers and which now has an Echo device that is gaining some attention?

It's very rare (ie likely unable to succeed) to see a "sponsor" dump all of their holdings in a stock when a company goes public so that is very unlikely to happen for the obvious reason that if you were a large institutional investor in the IPO, you would not appreciate an owner that understands the business to exit while you come in. There are also limits on how many shares owners can sell (lock-up periods).

I actually think discounts and participation caps would conceptually be much better if they were tied to IRR, as long as there are boundaries on each end. I get that in practice fixed values are used because they make the math easier and save lawyer hours, but it's a horrible misalignment of incentives.

"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!

Oh, and I would not be surprised if Apple basically times major announcements re: Apple Music (subscriber numbers, if good, or new product features, etc.) around Spotify's IPO date and first earnings call to kill the pricing on both front - if I were Apple, I know I would =)

I have to also assume this has already been considered in the game theory. So something else unexpected, unpredictable perhaps.

Edit: The more I think about it, doing nothing would be most optimal. Doing nothing is so much more cost effective when you know it's a inevitable decline.

Why would Apple care about Spotify's stock price?

Well it's a really dirty tactic, but it can be hard to retain top talent (who are largely rewarded with options/shares) if a company's stock price crashes.

Otoh your chances of hiring that talent are lower if you're the aggressor responsible for the stock tanking

heh true, they might not care at all - Apple makes more $$ in a quarter than several Spotify market caps. But, here's a few theories: if Spotify keeps calling itself the "leader" in streaming and Apple decides it wants this to stop, it would be an easy/cheap way to impact Spotify's brand negatively, and even potentially bring them down entirely. Alternatively, by driving the price down, it could also force Spotify to explore selling itself at a low price (see: Pandora), and if Apple wanted some fast/easy subscribers, it could acquire them cheaply.

One way to leverage a high stock price is through all/part stock M&A transactions.

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

The glassdoor reviews seem to universally complain about poor stock compensation, so it seems they weren't getting much to start with.

That is likely more to do with them being Swedish I suspect.

Stock compensation is a lot less competitive here due to it being taxed as normal income for the most part. Not to mention salaries being a lot lower in general than USA or some other parts of Europe.

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

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

That says it all really.

Management and early employee incentives are rarely aligned.

Would it not be possible for an employee to hedge/short-sell the stock using i.e an option?

Mark Cuban did this when selling broadcast.com to Yahoo. It's a pretty amazing hedge: http://investmentxyz.blogspot.com/2006/05/cubans-collar-anat...

I'm not familiar with Spotify's terms with employees, but it's not uncommon for this to be expressly forbidden in the stock option / Rsu grant agreement.

They could perhaps buy call options against their direct competitors (Apple and Pandora, even though the latter is doing terribly) in the event that the IPO goes poorly, but that would essentially require that Spotify losses be countered by gains in the competitors, which is of course not a guarantee.

Basically: they're kinda fucked if it goes south.

Spotify isn't listed so any form of derivative contract is not standardized and is thus subject to liquidity and counterparty risks.

These terms remind me of penny stock toxic financing schemes.

I look forward to the inevitable pump and dump around IPO time.

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 .

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)

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."

* 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...?)

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.

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

I mean this stuff: http://i.imgur.com/qb36KVA.png

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.

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

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 ??)


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.”


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.

>plus the horrifying visual ads (for playlists and new albums) make Spotify a product I kind of love to hate

You mean in Browse, where you go to discover new music? Is there a streaming service that doesn't have a Browse section with recommended playlists/albums/etc?

It's not like they're advertising Dove soap or Coca Cola, they're showing you new music.

I'm not saying Spotify is a morally bad company for showing these things. It's just my personal taste that creates my own idiosyncratic revulsion... mostly with the advertised playlists.

"No need to stress out. Stay relaxed with these easy, upbeat songs."

"Soul. It's about feeling. It's about authenticity."

"Coffee table jazz. Relax to the sound of jazz."

"Chill hits. New and hot hits for your chill moments."

I'm just saying, like, my preferred Emacs-based music player (Bongo) never shows this kind of inane, awful, soul-crushing babble.

I started using Pandora purely because of Pithos (a native Desktop app). Uses next to no resources and has all the functionality. Hell, there's even pianobar, a command-line client. How I wish we had these for Google Music, my platform of choice. Spotify is right out unless I need to listen to a specific song.

God i hate Spotify Helper

I googled for "spotify helper 100 cpu" and there seem to be tons of forum threads of people complaining about it... but the community forum insists that I register an account to even view the threads linked by Google, so, um, maybe I'll just go back to sheer piracy, so I can use open source software that doesn't break my computer.

    rm -rf ~/Library/Caches/com.spotify.client/
fixes that for me. For a while.

I had no idea it was another fucking chrome wrapper now. It used to be completely native didn't it? This explains a lot.

Does anyone fancy putting the last good client up on mega or something?

Between windows and android I literally have had no issues using the mobile and the desktop apps.

Apple's desktop version is iTunes.

I don't believe it's available in Singapore :( asks for US address when I tried to sign up not long ago.

I closed my account about 3 months after they changed the desktop app. Haven't tried since. May give it another to.

I'm still using 0.9.7 on my Mac. I've deliberately broken its self-updating so I can keep it. If they ever do anything that stops this client from working they lose me as a customer. This is one of the last versions that have the old interface. The new all-black version is hideous and I hate using it. There's a massive thread on their forums full of people that hate it. I can't believe, with the amount of funding they have, that they can't spare the dev hours to build a few themes: light, dark, and somewhere in between.

> Apple doesn't have a desktop version...

What? iTunes isn't available on the desktop anymore? When did that happen? I used Apple Music on my laptop when it was released last summer.

The desktop app is nothing special, just another web-view. Put Amazon or Google Music into Fluid and you have the same functionality minus media key control.

That's not true at all. It's more than a web view as it supports more functionality, for example the open.spotify.com website does not supported a nested folder structure, but, on desktop I create something like http://i.imgur.com/pOMwTeB.png. It also has the integration between phone and multiple devices, unlike web, so I can control my desktop app from my phone (full control of desktop from phone, and vice versa)

"Minus key control" is HUGE, though. Key control is amazing.

Groove (xbox music) has a desktop app and it runs a lot better than Spotifys. Also Tidal has a desktop app that also runs better.

You are not tied to the Spotify official app if you are a paying customer. There are alternatives.

Or I can simply pay for basically any other service that does the same job without facebook (even though I have an old account), without social features, without a shitty client that drains computer resources in mysterious ways.

But finally, an app that doesn't require me to share my pictures with them. That was the spike in the coffin for me. I really enjoyed Spotify when it was new, but their clients has just been lowering in quality ever since beta.

Honestly, I think the beta client was way better than the client today.

> [...] their clients has just been lowering in quality ever since beta.

> Honestly, I think the beta client was way better than the client today.

As a response to a post only stating that you don't need to use their client? Seriously?

Also, what has facebook to do with anything?

I wonder if this is in regard to the fact that for a while, some time ago, Spotify required the use of a Facebook-integrated login. They no longer do, but people who signed up during that time would need to go through a conversion process to have a non-Facebook login.

Oh yeah? Any good ones?

Not that I know of really. I mean, I haven't tried any. I just stumbled upon their existence when searching for media servers.

> Apple doesn't have a desktop option


Apple Music is available in the iTunes desktop app (Mac, dunno about Windows). still alive and kicking in this office...

I've always been very put off by their rah rah support for Agile. In many ways, I think Spotify cargo cults on the Netflix culture document, but they don't actually have a tech culture identity that they've created for themselves, they just make a big fuss about Agile, oppressive open-plan spaces, and fancy parties.

I think Spotify is a great example of why job candidates should look before they leap when it comes to agreeing to be managed in an Agile process or made to work in an open-plan office.

Unfortunately, I agree with you that these types of situations can be good for unproductive employees who want to hide somewhere within a company that might look good on the resume.

I can't say it definitively about Spotify since I have never worked there. All I can say is that the mixture of status signalling open-plan office + needless opulence + Agile strongly suggests dysfunction.

It's further discomforting that they plan to use this money for marketing according to the article. That seems like a big gamble. It's somewhat of a signal that they fundamentally believe what they have engineered is good enough and satisfies customers, and now they just need to generate spam to get more customers.

For a company at their stage and market penetration, I'm not sure this makes a lot of sense. I think Spotify might actually do better by creative innovative new engineering features and improvements, rather than just trying to lever up the number of subscribers for what will more or less be the product they have right now.

> I think Spotify might actually do better by creative innovative new engineering features and improvements

If the problem is user acquisition, you don't get there with engineering improvements. Only exception is if those tech/product improvements are for increasing virality.

Yes they'll probably spend the money on marketing / PR, which makes sense since that's likely where the bottleneck (or foreseeable bottleneck given the other players in the industry) in their business is now.

I'd argue that engineering improvements would be key for user acquisition.

Where is that massive growth supposed to come from if the app is too complicated for users older than 30 years and too bloated for devices older than 2 years?

> the mixture of status signalling open-plan office + needless opulence + Agile strongly suggests dysfunction

I shuddered a bit when I read this. I worked at Audible - another successful audio media company - for four years, and you just perfectly described the dysfunctional scenario I witnessed while there. Couldn't have described it better myself.

Apple and Google can market to people who already have accounts and devices from Apple and Google. Spotify is at a significant convenience and huge marketing disadvantage.

> Spotify waste so much money on their employees, who effectively do very little

Plenty of businesses waste money on some employees who effectively do very little, like diversity officers, equality consultants and such useless positions ... The problem isn't them , the problem here is Spotify unstustainable business model, period. They will go down, sooner or later. The fact that they had to take a loan means they can't raise money through VC rounds anymore. It's clearly the end of an era for a LOT of startups. And that's fine. It's call redistributing cards.

A diversity officer isn't necessarily a waste of money. They can be crucial for ensuring a solid company culture that levages talents from a diverse pool of people. If you make your company inhospitable to groups of employees based on their race or religion you are only hurting your bottom line.

You shouldn’t need a diversity officer to stop your business being inhospitable to employees on the basis of background - this should be core to your business culture. It is like having a come-to-work-and-get-stuff-done officer.

Well I agree, ideally this should be automatic and inherent to a business, but when a company gets to a certain size you need people to be really thoughtful and consciously focused about this stuff, otherwise it can slip. So sometimes growth necessitates a dedicated person thinking about these issues.

More often, the person is just a token hire who functions more to ensure legal deniability on the company's part for anything that might pop up related to a diversity issue.

I hope more companies hire diversity officers for the sake of thinking hard about how to ensure that policies and company behaviors aren't harmful.

But for me it's a "I'll believe it when I see it" sort of thing. The default belief has to be that it's just a token position for the sake of legal deniability, just as most of HR has evolved into.

Yup. I've yet to see a diversity office having an actual budget and spending power.

A diversity officer isn't a waste of money if it impresses other people who want to give you business and pat themselves on the back for supporting diversity. If you pay someone $500k/year to be a "Chief Diversity Officer" and that shields the company from bad publicity, then it's probably "worth it", even if that person sits in their office playing solitaire all day long.

The majority of their costs come from buying content. In 2014 they spent 70% of their revenue on labels and artists.

Fundamentally they have a bad business model. Good on them for ditching Taylor Swift - while she is very popular the financials likely showed the ROI for having her on the platform was negative.

IMO Spotify is going to either need to change how their business works or make some painful cuts to become sustainable.

Spotify did not ditch Taylor Swift, you have it backwards. She has been quite outspoken in pulling her content off Spotify, not the other way around. Same reason why Adele's 25 is not there.

The ROI is not negative for major artists. Missing major artists creates "holes" in people's listening habits, and they start getting fed up with the service the more of them that are missing, and that leads to cancellations and churn. Spotify would take her or Adele or whoever else has pulled their content back immediately if possible.

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.


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?

Rather a sidenote: Surprisingly enough I think that none of the current services, including Spotify, hold a candle to what rdio, now shutdown, had to offer. I was shocked to learn just how far behind Spotify, Apple Music, Tidal, Deezer or Google Music were when I had to look for an alternative. It's really bad. That was a very common reaction among ex-rdio users.

What do you miss?

I was an Rdio subscriber from 2010 until it shut down, and I've been a Spotify subscriber since. I can name a few things:

1) Discovery. Rdio would inform me when new albums are out by artists I listen to. Spotify doesn't. Rdio's "Artist Stations" were also much better – not only did they not repeat (like Spotify's do), they also let you choose whether you wanted to hear "more" or "less" of the artist themselves while listening to their station.

2) Social. I miss seeing my friends faces next to albums, letting me know that they'd listened to it. I also miss the "Network Heavy Rotation" view, that showed trending albums by friends/users I follow. I miss that a user's profile would show you what albums they've been listening to frequently lately. Spotify only tells you what track a friend is listening to right now, and their profile shows you what artists. So, awesome, you know your friend is listening to Bowie, but you don't know which of Bowie's 20 albums they're into.

3) Your collection. Rdio had no upper bound on saved albums (that I'm aware of). I've already peaked the maximum number of saved songs in Spotify – it literally won't let me "save" anything else without going through my existing albums and choosing something to remove.

4) Playlist searching. Spotify by default names your playlist according to the first song you've added. You have to go out of your way to give it a different name. This means there are TONS of playlists in Spotify that are named "Nirvana" purely because that was the first song in the playlist. It massively pollutes searching and makes finding good playlists tough. Also, there's no sensible ranking of playlists – Rdio would at least tell you which were the most popular, which was usually good enough.

There are about another dozen things I could name, but I'll stop here. Spotify has felt like a giant step backwards from Rdio, and I think I'm going to explore alternatives soon.

Hmm. I get notifications for certain artists of new song releases; I'm not sure which ones and why though. deepakg suggests you get them if you follow artists, but the spotify client won't load the artists page for me at this time.

I will say, at least for me, Spotify's "Discover Weekly" which is refreshed Sunday nights is amazing. I've saved at least 2 songs from it every week, and most weeks more than 2.

If only they could build an android app that doesn't crash or get flaky all the time...

The social features sound cool.

> I will say, at least for me, Spotify's "Discover Weekly" which is refreshed Sunday nights is amazing. I've saved at least 2 songs from it every week, and most weeks more than 2.

Rdio basically had a feature that created an "Rdio" station from what they called your "heavy rotation". It featured songs by artists that were similar.

To me, it was the equivalent of "Discover Weekly", except available at any time instead of once a week.

> Rdio would inform me when new albums are out by artists I listen to. Spotify doesn't.

Spotify does, but you need to follow the artist from the artist page. I get a push a notification on the iPhone and a notification on the Mac desktop app. That said, sometimes an album being out doesn't necessarily mean it being available on Spotify in your country.

That seems like an unnecessary amount of work. So I need to click through and follow the 100+ artists I'm a fan of?

1) Google music also tells me about new releases 2) not much social in gmusic 3) haven't found an upper bound on saved songs 4) I don't use public playlists a lot, but you do have to pick a name when creating one

A key feature that made me switch from Rdio was that if I searched for an Artist I could not play it's most popular songs. It just played albums.

All the features you listed is nothing compared to that basic functionality.

I disagree. Sure, people value different things, but I'd rate that functionality as a pretty minor feature. As a compromise rdio highlighted popular songs within an album. Artist stations with the slider set to focus on the current artist (only?) might have achieved the same results too, I guess. So, it's not as if it couldn't be done.

The almost complete absence of social features however, that's a big one in my opinion.

Funny how people are different. It was big for me, since I stopped paying them money just because of that missing feature.

Personally, I think the less social features, the better.

Sure, usually I'm not keen on social features either. Rarely touch them. However finding like-minded people and discussing shared interests. This is basically what happens here. With that in mind I always avoided following real life friends on rdio or Spotify as I didn't want them to ruin the recommendations, suggestions, feeds, etc. Well, it matters a lot less on Spotify since the features aren't there anyway. However rdio with a bunch like-minded people you never met was great. The good kind of social interaction.

You could visit an artist, hit "play Rdio station" and it was basically equivalent. It always leaned towards hit songs.

Personally, I'm an album-centric listener so I preferred Rdio's music organization.

The first things that comes to mind:

- Browse by label (additionally sort by most recent releases): I know it's not a mainstream thing, but labels, particularly smaller ones, are very good curators and a great indicator for worthwhile music. For the music I enjoy it's absolutely necessary to keep up with a label's recent releases.

- A great community that had tools to discuss music and releases: Being able to comment on albums, playlists and other items seems like a very obvious feature to me. And it was a powerful one on rdio - You'd often see familiar faces in the comment section of an album and start interesting discussions. This isn't possible on Spotify at all. Furthermore I could see what's popular among my friends (and not just in general!) on a single "Heavy Rotation" page - if you carefully select who to follow, this is invaluable. I have a similar follower count on Spotify as I did on rdio, but no meaningful way to interact with them - there's an activity feed where I can share discoveries with everyone, but it's the saddest thing I've ever seen in social networks: It's a one-way feature to shout recommendations at everyone but there's no way for others to get back to me and add their feedback. I might as well talk to myself. If you enjoy being a curator and recommending things to others Spotify is close to useless.

- A working queue: This is just horrible. It's not obvious at all how the queuing system works in Spotify. Apparently it's tied to whatever client you're currently use. Listening on mobile? Better prepared to see a very different queue once you switch over to the desktop. In rdio the queue was basically a persistent "Listen later..." playlist - it could differentiate between single songs, full albums and palylists - if you had an album and a playlist queued it would show two items which you could drag and drop in order to move up or down. Beautiful. Enter Spotify: Imagine you're listening to an album and you'd like to add a second album to be played after the current one. Instead Spotify will start playing the second album immediately after the current SONG thereby interrupting the current album. By the way, the option to start that confusing process is called "Add to queue", not "Play next" which doesn't exist. Horrible. On iOS you can't change the order of the current queue either - you can't even jump from the current track to item #27 as the only way to navigate the queue on iOS is to skip track by track. It basically means that you'll never use the queue for anything and just create your own "Play later" playlists.

I get the feeling that Spotify is for people who don't want to deal with music. Start the app, hit play on a Spotify-provided playlist with a hip background cover and mildly interesting name and be done with it. That person is not me. However I can see why it was appearing to the masses. The sad thing is that rdio could do all these simple things and be used in similar fashion to Spotify and its playlist-centric approach too - it just offered all those additional features on top and still lost.

Both Spotify and Pandora are losing money on a consistent basis. IMO streaming music is a losing business, and the only way a provider is going to stay in the market is because they have other services that complement the music.

I love Spotify and am a daily user but honestly it's going to take a lot of work to turn things around for them.

Content acquisition costs are killer and are not something that can go away.

I thought the exact same thing about Netflix. What I missed was actually quite obvious: there are already companies making a lot of money in content delivery (e.g. Comcast).

I don't know whether that will carry over to music quite as well though.

Music is different in that a number of folks (Spotify, Apple, Google, now SoundCloud, etc) are all licensing most of the same music from the same distributors for similar prices. Sure, there are some exclusives on particular platforms, but it's mostly the same music. All there is to Spotify is the UX.

Video is different. Most content companies have bid out their back catalogues to one exclusive provider, or creating additional premium content (think House of Cards). In video it's all about premium exclusive content. In music there is some of that, but it's mostly all the same.

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.

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.

You mostly well described it for me. I tried Apple Music for a while but I get Amazon for "free" through Prime. I don't really care about having everything. I have a pretty big music library already and I'll buy anything I really want. (Where I probably differ is that I'd just as soon own music that I particularly like.)

From the article: "A source familiar with Spotify’s finances tells me it still had €570 million still in the bank, so there was no gun to its head to raise this money."

But if they cut down spending 10-15% they could be profitable.

According to the Guardian article cited in another comment, it seems that they spent roughly 880mn in royalties, 180mn in personnel and 180mn in other costs. If royalties are what they are, they would have to cut 160mn in the 360mn personnel & other sections (45%) to be profitable. (I'm talking about 2014 results here, the numbers are probably different now).

Edit: actually, according to the article, the 880mn correspond to "royalties & distribution". There is more info about these numbers at http://www.musicbusinessworldwide.com/how-can-spotify-become...

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?

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.

> 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).

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.

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.

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".

> 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.

Re:taking lower lages. I'm pretty sure early Spotify employees had no idea it would become this big AND have pretty good wages as it is right now.

It doesn't mean that they don't care about their share in the company (obviously, after spending 5 years of your life at a company, you want your share of the cake) but it's unfair to conclude that they only have their stocks, a lot of the early employees either left the company or occupy rather senior positions at Spotify.

Spotify is already an exception in many ways, so it would have been nice to see the employees that stuck with it this long have a really nice payday. Doesn't look like it from where I'm sitting though, this feels like a Hail Mary pass.

True - probably, founders have no choice. One side note though: it's increasingly common for founder's to cash out a few million in later stage rounds, often under wraps, to "keep them from being tempted to take lower buyout offers" is the usual theory, which is code for getting them to be more aligned with the investors. In any case, those deals are often not accessible to employees, just founders.

The most cynical take is that the investors are buying them off to be not just more aligned with investors, but less aligned with employees =)

Founders haver probably already sold off equity worth tens/hundreds of millions of dollars during previous rounds. Taking some off the table..

Their interests are aligned, but early employees stand to take an even closer haircut on options--assuming significant strike price--rather than founder shares.

You can't, really. This is one reason why I think the 'start-up' scene is statistically so-so for founders, potentially great for investors but not so good to outright bad for early employees except in a very few exceptional situations.

Everything has to work out just-so for employees to end up wealthy beyond making up for the lost pay and the overtime, assuming they even get that (most likely: nothing).

Early employees always get diluted. That's what happens when you raise additional capital, regardless of structure.

They make up for this with a combination of a lower exercise price, the vesting clock starting earlier, and typically a larger grant for earlier employees.

Companies retain employees by giving additional refresh grants and/or raises.

I'm not sure why it's OK for Uber to raise a few billion $ and there isn't a fuss about how that's hurting employees when it's not okay here. They both are getting diluted.

Very little can be done, and it's designed that way. Capital > labor, all that.

The best option is to attempt downside protection by selling shares in the secondary market, even at a discount - of course, Spotify being a EU company, I don't know how difficult it is to do that, though I imagine (like most other things) it's more regulated (aka. tougher to do) than in the US. Even if easy, it's getting harder and harder to find secondary market buyers.

Rough out there!

Like all common share holders, they have almost no options. Not being a lawyer I can't speak to what is legally possible, but I imagine it's hard to prove that moves like this are necessarily not in the best interests of the shareholders as a whole. Common shareholders just happen to be a tiny, tiny percentage of the whole.

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.

Good point - it's all or nothing for Spotify, they are not profitable at current scale and need critical mass re: subscribers + defense against Apple, and if they don't get there, then they are dead anyhow.

> they are not profitable at current scale

How? They are making approximately a 1 billion dollars a year (30 million subscribers * $10/month * 12 months/year * 30% cut). Their engineers are probably paid less too since they are not based in the US.

The only thing i can suspect that they are blowing that much money on is marketing but even that just seems ridiculous unless they are losing that much on the freemium users.

Can someone explain this to me?

There's a couple answers here - as you mentioned, marketing is a huge cost, and they have to support a massive global ad sales organization as well to support the free tier.

IMO, what's really more problematic and complicated is their economic arrangement with the major labels, which, while ostensibly "70/30" is actually way more complicated than that. The article does a decent job of explaining it: http://www.theverge.com/2015/5/19/8621581/sony-music-spotify...

TL;DR: to induce a major label to sign, Spotify had to give them a sweetheart deal, including minimum per stream payments, minimum % of ad revenue, and free ad space.

The really tricky things to consider are: usage-based and per subscriber minimums. Hard to determine exactly, but it's highly possible that Spotify is much worse off than the 30/70 spotify/label split.

Also, note that there's a good chance the contract is already re-negotiated since that was published, and given Apple Music, likely not in Spotify's favor.

This is Spotify's main problem.

They own nothing and sharecropping with other peoples property never ends well. The labels can bleed them to within an inch of their life without any risk as there are other companies with additional revenue streams to support themselves that will offer better deals and take up the slack.

We won't know for sure until they file for IPO and release their financials, but remember that Spotify doesn't own any music. Every stream they play they have to pay the artists/labels for, so their margins on subscriptions are probably slim to start with. LinkedIn also tells me they have over 2,200 employees, which to me is insane. Even if their salaries are merely market average, that is a huge chunk of change they are paying in labor costs. Add in office space, marketing spend, server/bandwidth fees, etc. and you get to where they are today.

Catalog rights is probably a good portion of it...

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.

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.

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.

My friends, family and I have had a completely opposite reaction. We have all ditched Spotify for Apple music because it integrates with our apple tv, and other devices so well. Beats radio is also pretty good for music discovery, with Deadmau5 and Pharrell having their own DJ spots.

It helps but not as much as you'd think. Lots of great/superior products have failed in the past. Waiting for your competition to fail is a great way to go out of business.

What are the "many companies" under real threat by Apple? I think the set is fairly small?

Many companies are under real threat from their competition, Apple is just the example in this case. At least that's how I read it.

I don't think OP was implying just Apple, anyone competing in a winner-take-all market has to have this attitude.

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.

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

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.

* 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)

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.

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.

lol, I actually know a few guys making decent coin leeching vanadium out of toxic waste (tailing ponds) from old strip mines.

>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?

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.

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.

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

> 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.

And Amazon Prime, which many now get for "free" because they get prime for other reasons

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.

> 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...

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.

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

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

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.

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.

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.

I find it a stretch to believe that any of Spotify's problems can be put down to the lack of an Apple Watch app.

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).

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.

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

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.... ) because it supposingly broke antitrust law(s).

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

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.

They have everything I want to listen to with very few exceptions and their Discover section is gold. I've found several of my recent favorite artists through Spotify. And being able to listen to any music, any time, is amazing. Soundcloud is mostly unknown artists and amateurs, and I feel like that's great if you're an artist and you need a dsitribution paltform, but that's too much crap to wade through for me.

Spotify is the best streaming option IMO. Absolutely great discovery with curated playlists.

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.

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.

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.

SoundCloud does an excellent job of finding "similar tracks" which autoplay after your current, and I often find myself in the same boat (or bookmarking a track because the related tracks are so good). Spotify comes from the other direction: You can play anything, as long as you know what it is, and the discovery (outside of "Discover Weekly") isn't as on-point or pushed onto you as strongly.

Beyonce doesn't release her songs on SoundCloud, but those who I listen to (or find myself listening to) on on SoundCloud aren't on Spotify.

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.

"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?

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.

Thank you!

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

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

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


Are they prepaying the royalties? Or subsidising?

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.

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.

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.

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.

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.

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

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.

Coming soon: S-1 filing.

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

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