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.”
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.
Is streaming music a good business?
Streaming has taken over as the dominant music format and is attributed with revitalizing the moribund business of record labels big and small. But for streaming companies, the answer is not as clear-cut.
Stuart Dredge over at Music Ally is reporting Spotify’s losses widened to $600 million last year. Read his article here. I just wanted to point out that some significant portion of these widening losses are due to currency swings. March 29th 2016 Spotify announced a $1 billion US denominated convertible debt deal with […]
Last year when Spotify took on $1 billion in debt, we reported that it did so under terms that forced rate increases if it failed to IPO. Now, those terms could force Spotify to IPO quickly, which leaves the music industry in a strong negotiating position.