@Maureenmfarrell: Private Trades in Spotify Shares to Play Key Role in Upcoming Debut

[Recall that Spotify is not doing a traditional IPO, but something called a “direct listing.”  The difference between the two is a bit down in the weeds, but is crucial.  In a traditional IPO (sometimes called a “full commitment underwriting”) a group of investment banks or the equivalent form an “underwriting syndicate” that buys new shares from the company at a valuation set by the underwriters.  Hence the “pricing” concept for IPOs–you will hear that right before a new company starts trading.  If the path to an IPO has been managed correctly, the underwriters’ valuation is higher than the last private valuation of the company’s last sale of its preferred shares to private investors.

The underwriters want to price in a range that they can resell to retail investors, so they wouldn’t ever price at $1,000 for a stock that is to sell in the open market.  Think about it–how long did it take Amazon and Google to get to $1,000 in the open market?  They didn’t start there.

Another reason–which I suspect is the true reason–that Spotify is not going the underwritten IPO route is because they can’t get the valuation they want.  This may have something to do with another aspect I believe to be true–Spotify is not cracked up to be a public company.

Chris O’Brien in Venture Beat has a really insightful post on Spotify’s problems with valuations:

The reality is that by taking this route Spotify is pursuing a risky strategy. And it’s likely only doing so because it was backed into a corner by its investors and by private fundraising that led to a dangerously high valuation of $19 billion.

“This is not a story of problems in the IPO market,” according to Kathleen Smith, a principal at Renaissance Capital and manager of IPO ETFs. “It’s a problem with Spotify’s valuation.”

So let’s be honest–the reason why Spotify wants to trade publicly has a lot more to do with Daniel Ek’s misplaced ego than it does with any intrinsic value of his company.   And don’t forget–when the dust settles, it is his company and this was his idea.  Genius or goat, he will get the credit.

But of course Spotify’s “public or bust” approach is really designed to allow existing stockholders to cash out.  And here’s the twist–if you’re going to sell, someone has to buy.  And if you don’t have underwriters standing behind a price point, then there is no floor to the stock price if the sellers start running for the exits.

So–Spotify is trying to look to existing private market sales–very limited and nothing like public market sales–for guidance on its stock price.  (Private markets are sometimes called “secondary markets” where you can buy private company shares.)  Maureen Farrell in The Wall Street Journal has some reporting on this which is both murky and enlightening coverage of who Spotify is “managing” (some might say “manipulating”) its stock price already.  And if you wonder what running for the exits looks like, check out the VIX crash.]

Spotify AB is counting on its surging private-market value to bolster the music-streaming service’s appeal to investors in an unorthodox public debut that could be the biggest since SnapInc.’s $20 billion IPO last year.

The listing, expected as soon as the end of March, isn’t an initial public offering, in which underwriters set a price and place shares with chosen investors before trading. Instead, the Swedish company will simply float the shares on the New York Stock Exchange and let the market find a price, in what is known as a direct listing.

While Spotify and its advisers are still determining how exactly the process will work, the company and its banks are expected to have a role in helping guide the market to a price and connecting buyers and sellers initially, people familiar with the matter said. A suggested price range is expected to be relayed to the market before trading starts, but the price will ultimately be set by what buyers are willing to pay and the price at which sellers part with their shares.

Private trading is expected to be a key part of the company’s effort to guide the market to a price, people familiar with the matter said.

The so-called secondary markets in private technology stocks are typically an afterthought in an IPO, in part because trading tends to be thin and not always a reliable indicator of value. But Spotify and its advisers at Goldman Sachs GroupInc.,Morgan Stanley and Allen & Co. are closely watching trades among private investors and have taken steps to spur volume, the people said. The company recently informed existing investors that it waived its right to buy shares before they are offered to others.

Read the post on the Wall Street Journal

@artistrightsnow: Content Creators Coalition: Spotify’s Wall Street Cash Out Leaves Artists Behind

PRESS RELEASE

Washington, D.C. – The Content Creators Coalition (c3) released the following statement on Spotify’s plan to go public on the New York Stock Exchange:

“Spotify’s founders had an opportunity to pioneer new models and partner with artists on ways to make the music ecosystem work for everyone – services, artists, and fans.  Instead, they cashed in – enriching company owners and deep pocketed investors and doing nothing for working artists who continue to chase pennies online.  This IPO chooses a short term payday over long term progress and will only weaken the streaming ecosystem, burdening the art of music with Wall Street’s bottom line first mentality and erecting new barriers between creators and their fans.

“Spotify’s algorithms and curated playlists have already failed artists and songwriters, making haphazard and emotionally stunted connections between supposedly ‘related’ acts and pushing costly advertising tools as the best way to reach new fans.  The result is the worst of all worlds – at one end artists and independent rights holders have no meaningful input into how their work is presented and promoted on the service and at the other end, they are paid grossly substandard wages for the airplay they do receive.  And it will get worse as Spotify’s managers focus more and more on shareholders and less and less on music.

“Artists stand ready to embrace streaming models that work for all.  But we will always reject corporate greed and ‘too big to fail’ models that squeeze the soul out of our work and distances us from our fans.”

About c3:

The Content Creators Coalition (c3) is an artist-run non-profit advocacy group representing creators in the digital landscape. C3’s work is significant to anyone who creates and makes a living from their creations. c3’s objectives are two-fold: First, economic justice for musicians and music creators in the digital domain. Second, ensuring that the current and future generations of creators retain the rights needed to create and benefit from the use of their work and efforts. C3 has grown into a national organization based on representation, advocacy, and mobilization for sustainable careers in the digital age.

@obrien: Spotify’s risky IPO reveals a valuation crisis, not a Wall Street revolution

There’s no narrative the tech industry likes quite as much as a good revolutionary tale in which a startup pursues a strategy that topples an established order. Such a mythology is now being constructed around the upcoming Spotify IPO.

It goes like this: Spotify is doing an end run around investment banks by listing its shares directly on the stock market. This is supposed to result in fewer fees for impoverished investment banks and new freedom for tech companies. That was the vibe of a story by the Wall Street Journal this week: “Spotify Disrupted the Music World, Now It’s Doing the Same to Wall Street.”

The reality is that by taking this route Spotify is pursuing a risky strategy. And it’s likely only doing so because it was backed into a corner by its investors and by private fundraising that led to a dangerously high valuation of $19 billion.

“This is not a story of problems in the IPO market,” according to Kathleen Smith, a principal at Renaissance Capital and manager of IPO ETFs. “It’s a problem with Spotify’s valuation.”

Read the post on Venture Beat

@theblakemorgan: Spotify’s Fatal Flaw Exposed: How My Closed-Door Meeting with Execs Ended in a Shouting Match

[Editor Charlie sez:  After this post started to take off on Huffington Post, Blake Morgan was told that HuffPo was killing the link on a flimsy excuse.  The Trichordist has reposted the piece along with correspondence from the HuffPo editor.]

I love streaming.

I love making playlists, I love being able to download streamed music so I can listen when I’m offline, and I love being able to bring that music with me. In short, I think it’s a great distribution method.

What I don’t love is how little musicians get paid for all that streaming. It’s not fair––not even close. What’s more, middle-class music makers are the ones who are hit hardest, whose businesses are threatened, and whose families are put at risk. So how can I be against the way streaming companies treat musicians but not be against streaming itself?

The same way I’m against the electric chair, but not against electricity.

@robertblevine_ & @cheriehu42: Spotify’s Uncertain Road Ahead: Legal Battles, Profit Pressures Loom As It Moves to Go Public

With an impending IPO finally on the horizon and copyright-infringement lawsuits worth over $1 billion stacking up, the streaming leader has plenty to deal with in the new year.

Spotify has established itself as the leader in on-demand audio, with 70 million paid ­subscribers worldwide. But the company now faces a series of hurdles as it ­barrels into 2018, with a long-awaited initial public offering on the horizon for the first quarter and ­several copyright-infringement lawsuits that could cost the company dearly — and hang a dark cloud of uncertainty over its head.

Read the post on Billboard

 

@danprimack: Axios Exclusive: Spotify files for its IPO

[Editor Charlie sez:  This explains the hush hush Music Modernization Act that was controversially introduced Dec 21–and why it’s called the Spotify IPO Protection Act!]

Music streaming giant Spotify confidentially filed IPO documents with the SEC at the end of December, Axios has learned from multiple sources….

All indications are that Spotify wants to list in Q1, and timing of the confidential F-1 filing would support such a calendar. But yesterday came news that the company has been sued [yet again, this time] for $1.6 billion for copyright infringement. It’s unclear how the suit will affect Spotify’s direct listing plans, outside of needing to add a new risk factor to the confidential docs.

Read the post on Axios

@robertblevine_: Spotify Attorney Estimates the Service Infringed 300,000 Songs in Settlement Hearing

During a hearing on Friday (Dec. 1) in the U.S. District Court for the Southern District of New York before Judge Alison J. Nathan, lawyers for Spotify and the putative class argued for final approval of the settlement, while two other rightsholders filed objections that the damages for each composition streamed were insufficient. Under the terms of the settlement, the writers of compositions that have been streamed between zero and 100 times would receive a minimum payment, while the rest of the money would be divided on a pro rata basis.

The basic issue is fairly straightforward: Spotify didn’t license mechanical rights for the compositions it streamed, even when it had rights to recordings of them. Although the company says that poor record keeping makes it very difficult to identify and find rightsholders, it also failed to issue the appropriate NOIs — Notices Of Intent — with the U.S. Copyright Office. In March 2016, Spotify agreed to a $30 million settlement with the National Music Publishers Association. Rightsholders can choose to opt out of the settlement and sue on their own, as several have already done.

Dealing with the issue is proving more complicated, especially since Spotify hasn’t said — and no one else knows — exactly how many compositions the company has infringed. That means lawyers for the putative class couldn’t say how much each class member would receive. “It’s hard to give a precise range,” said a lawyer for the putative class.

“How about an imprecise range?” Judge Nathan asked.

This, too, was difficult, apparently, although a lawyer for Spotify, Andrew Pincus of Mayer Brown, suggested a “ballpark” estimate that the company had infringed 300,000 songs. That would mean each rightsholder would get an average of about $100, although the actual numbers would vary widely. Statutory damages for willful copyright infringement range from $750 to $150,000.

Read the post on Billboard