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.”
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.
As ARW readers will know, the Huffington Post censored my friend and whistleblower Blake Morgan who posted his story from a few years ago about a particularly teachable moment involving his encounter with Spotify’s tone deaf executive class. (A teachable moment that was reported at the time by Harley Brown at Billboard which makes HuffPo’s lame editorial excuse ring even hollower.)
As producer Michael Beinhorn noted:
My friend Blake Morgan wrote an article criticizing Spotify which was published yesterday on the Huffington Post website. This article began developing traction, but within 2 hours of posting, it was removed from the website and Blake received a vague email from someone at HuffPo as to why. It has since been republished by David Lowery on the Trichordist website, and now includes the email Blake received after HuffPo excised it from their site. One has to wonder why the Huffington Post- which represents itself as a hotbed of liberal thought and free speech, would publish- and then unpublish- something so important (and summarily/subsequently ban its author as a contributor to their website). Could this decision have anything to do with the fact that the current CEO of HuffPo is the former General Counsel and Global Head of Corporate Development at Spotify? Can you say “conflict of interest” or “a threat to my stock options”? Please read and judge for yourself….
Michael makes a very good point here. According to The Lawyer, the HuffPo CEO, Jared Grusd, exited Spotify in 2015 after working there for four years–2011 to 2015. While we don’t have knowledge of Mr. Grusd’s dealings with Spotify, we can infer a few likely interesting points from that situation.
First, Mr. Grusd’s tenure (2011-2015) apparently overlapped with Jonathan Prince, Spotify’s head of communications and ex-Clinton and Obama official who formally joined the company in 2014. My assessment of Mr. Prince is that part of his job would not only be placing positive news about his employer Spotify, but would also be suppressing negative stories like Blake’s post. To my knowledge, Mr. Prince is still at Spotify.
The particular years that Mr. Grusd was employed by Spotify would start around the time of the company’s U.S. launch and continue for four years, a customary stock option vesting period. We don’t know what percentage of the company Mr. Grusd owns, but we can assume for the sake of argument that it’s around 1% of the then outstanding stock and that Spotify did not repurchase his shares when he left the company. Of course, since Mr. Grusd is obviously a very important person and had two roles at Spotify, he could well own (or have the right to buy) a greater portion of the company, but probably less than 5%. He would probably have been considered something of a late-stage founder for purposes of truing up his initial stock grant and could also have been granted further stock bonuses.
A stock option is the right to purchase stock at a fixed price, usually below market and maybe way below market. Stock options “vest” over time as a way of incenting employees to stay in their jobs (and are often called “incentive stock options”). You cannot exercise stock options until they vest. It’s not uncommon for a company to grant a bunch of these incentive shares to an employee but require the employee to stay at the company for at least 12 months in order to vest at all (called a “cliff”), with monthy vesting thereafter of the remainder of the grant on a prorated basis. These “incentive stock options” may have certain tax advantages.
So if you were to get 100 stock options on a 12 month cliff with monthly vesting, after one year of employment you’d be able to exercise 25 shares, and each month thereafter you’d be able to exercise 1/36th of the remaining shares, or 25% per year. (Which can be one reason you see people leaving some startup jobs after four years.) These shares are almost invariably common stock grants.
How many shares of Spotify stock Mr. Grusd owns and his exercise price will, of course, depend on the number of shares outstanding at the time he was hired and the value of the common stock at that time (leaving aside the “cheap stock” issue), but lets assume that Mr. Grusd got 500,000 shares and that he owns all of them. But realize that he could easily own much, much more.
When a company goes public, those shares become very valuable because the exercise price of the option is almost always substantially less than the market price of shares. (Plus, there is something called a “cashless exercise” which allows holders to avoid having to pay anything at all for their stock, “collars” which allow holders to sell their position to a third party, and other tricks of the trade that allow people like Mr. Grusd to “get liquid”.)
Also remember that Spotify’s proposed stock offering according to press reports is to be a “DPO” (a “direct public offering”) not an “IPO” (an underwritten “Initial Public Offering”), an unusual choice by the company which evidently means that there are no underwriters involved. This move has been criticized by some but lauded by others (which may be evidence of Mr. Prince’s hand). One feature of the DPO is that it might be easier for someone like Mr. Grusd to sell his shares immediately or at least sooner than with an IPO. My sense is that Spotify will be under a lower transparency standard between the DPO structure and the fact that Spotify and its Chinese partner Tencent will probably be filing as a foreign issuer (on SEC Form F-1 and not the traditional S-1 for those reading along). This remains to be seen.
However–Dr. Beinhorn has correctly put his finger on Mr. Grusd’s problem. If Mr. Grusd has Spotify shares that he holds personally (and not through a blind trust) and as a former Spotify “insider” (for securities law purposes) he appears to have every incentive to keep the murky Spotify story as postitive as he can. In his current role at HuffPo Mr. Grusd is uniquely positioned to suppress bad Spotify news for his personal enrichment even if Spotify hasn’t offered him anything to do so specifically.
Whether any of this happened, we can’t be sure. But it sure looks funky.
Another thing that’s funky? Mr. Grusd was evidently General Counsel of Spotify during the time (2011-2014) that many if not all of the licensing failures occurred that lead directly to all of Spotify’s current litigation problems. It would be typical for a General Counsel to sign off on something as legal and as critical to the company as its licensing practices (or failures). Whether that’s leverage for Mr. Prince to extract compliance from Mr. Grusd is something you’d have to ask them–or Spotify’s D&O insurance carrier.
Either way, potential Spotify stockholders buying shares in the public market should be able to hear the good and the bad about the company’s management or mismanagement which Blake was trying to tell them. I don’t know if a former insider has a legal fiduciary duty to the public (or even to existing stockholders) in this regard, but at a minimum it would certainly be a better look not to suppress stories that could inform the investing public if your CEO really does have a conflict of interest.
So on balance, I think Michael Beinhorn has put his finger on something of extraordinary importance to public policy and the well-being of the investing public in general about which the HuffPo’s readership and potential investors in Spotify ought to educate themselves.
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.
Amazon, Google, Pandora, Spotify and other tech companies are taking advantage of their influence in the Library of Congress to leverage a loophole in the Copyright Act to their great benefit and to songwriters great harm. Congress can stop them overnight if the Congress will act.
[Editor Charlie sez: Spotify can’t account for millions of songs as it is, how will they give songwriters a straight count on “Jump In” feature? Easy answer–they won’t.]
Spotify is testing a new feature called Jump In that would let its free mobile users get on-demand features in certain playlist, according to multiple sources with direct knowledge of the situation….
Spotify is currently in the midst of negotiations with all of the major labels, and those deals won’t be done anytime soon, according to multiple sources. Given that there are no deals in place, the company would need special approval to push Jump In, which could potentially alter or delay the rollout schedule.
Newly married Spotify Chief Executive Daniel Ek is coming around to the idea of compromise.
The streaming leader is discussing making some new music available only to paying subscribers in hopes of ending a months-long impasse with the major record companies, The Post has learned.
The recent change of heart for Ek — who said “I do” to Sofia Levander in lavish nuptials over the weekend in Italy’s Lake Como — stems from a desire to make Wall Street happy, sources said.
As part of its negotiations, Spotify wants to lower its revenue split and make its finances more attractive to potential investors.
Spotify wants to hand over less than 50 percent of its revenue to the labels, sources say. Right now, it pays them as much as 58 percent of revenue.
“There are two things being discussed — windowing and rates. It’s a bit of ‘we’ll compromise if you compromise,’ ” said a source familiar with talks. “They’re tech people and they want to get rich.”
This is what happens when a tech company adopts a “seek forgiveness” licensing policy.
Spotify is now being threatened with another major lawsuit, this time from a totally different group of publishers.
The following is a developing story exclusive to Digital Music News. Please check back for ongoing updates.
Spotify is now being threatened with yet another major lawsuit, this time from a group of indie music publishers demanding unpaid mechanical royalties. According to sources either close to the situation or involved with one or more of the publishers, the collective of publishing companies is unhappy with a recent settlement agreement with Spotify structured by the National Music Publishers’ Association (NMPA), one viewed as overly-lenient and designed to accommodate the interests of only the largest publishing conglomerates.
The indie publishing group is also unwilling to join a songwriter-focused class action lawsuit against Spotify, first lodged last year and carrying potential damages of $200 million.
The collective of potential litigators currently comprises 4-5 publishing groups, according to information shared with DMN. That group could grow in size, though these midsize, indie publishers collectively control about 150,000 song copyrights. That’s enough to create a serious problem, and Spotify has already received litigation threats and letters, according to one source.
At this stage, nothing has been filed in court.