What Spotify Going Public Means for The Music Industry

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For a few years now, the rumor mill has been churning out stories about Spotify going public. The Swedish streaming giant has finally put an end to all the talk by filing the necessary paperwork with Securities & Exchange Commission in late December of 2017. The catch? The company, which is currently valued to be worth around $19 billion, has forgone a traditional public offering in favor of a direct listing‒an unprecedented move for a company this large.

Typically, a company’s initial public offering (IPO) is greatly influenced by an investment bank, which is hired to issue shares and then subsequently sell them. In this scenario, new investors are able to get involved with the company, and there is the potential to raise an immense amount of capital. However, by filing for a direct listing, Spotify has decided to skip this process. Once their company goes public‒which is set to occur in either March or April‒they plan to simply list their shares on the New York Stock Exchange (NYSE) and allow trading amongst their private stockholders.

This has been met with equal amounts of awe and suspicion. So far, Spotify has been commended for its power play, which turns traditional investment banking on its head. By cutting out the middleman‒the investment bank‒the company will potentially be saving upwards of $300 million, according to Wall Street Journal. For reference, that’s the same amount of cash that ad revenue brings in annually from the roughly 70 million users that choose not to pay for the service.

At the same time, seasoned investors are skeptical about the company’s (possibly baseless) display of confidence. For a direct listing to be successful, especially one of this scale, the company operates on the assumption that investors are already keenly aware of its value and do not need to be convinced by an investment banker. This could prove to be a risk.

While it is financially leaps and bounds ahead of streaming competitors like SoundCloud, who was recently bailed out, Spotify still remains an unprofitable company. The funds brought in from users alone pales in comparison to what running the service actually costs, and Spotify has yet to enact its plans to break into lucrative worlds of podcasting and multimedia news. That, combined with the price of several high-profile lawsuits regarding licensing in 2017, could be enough to lure in cloudy skies over the company’s parade. Although Spotify’s growth has been highly anticipated, its future still remains uncertain.

However, if successful, Spotify’s move will undoubtedly have a ripple effect on all other streaming services and, ultimately, the music industry as a whole. At this point, it is safe to say that Apple and Amazon are Spotify’s biggest competitors on the music streaming market (sorry, SoundCloud and Pandora!). What is giving Spotify the edge it needs to stay afloat is the fact that it entered the world of music streaming‒which now dominates overall music consumption‒earlier than its competitors, and has more paying subscribers than competitors. Unfortunately, that’s not all it takes anymore.

In order to become a more profitable company, Spotify is going to have to diversify its services and work in between the artists and their fans by offering services like artist development and promotion, which are traditionally left to record labels. Unsurprisingly, labels aren’t too pleased with this notion and likely won’t be jumping out of their seats to cooperate with another iTunes level monopolization of the industry. Consequently, the company won’t be relying on the music business for any favors.

Other than the IPO, Spotify has used the last year to take a few dramatic steps towards turning a profit. Most notably, paying users will now have earlier access to certain albums than their ad-listening counterparts. Basically, unless a user is willing to shell out the $9.99 monthly fee, they will be restricted from new albums for up to two weeks after a release. On a less abrasive note, users may have also noticed the appearance of the Merchbar on an artist’s page, signalling the beginning of a partnership with the merchandise provider.

Speculation about what move the company is going to make next is currently at an all time high, especially as investors anticipate the coming IPO. It is clear that Spotify isn’t going anywhere, but that doesn’t mean it isn’t going to have to make some concessions. While the company is adamant about continuing to provide its free features, it still has a lot of obstacles to cross‒specifically, navigating the competition while avoiding the alienation of record labels. Going public was just one way of doing so.

Read more Music Articles on ClicheMag.com.

What Spotify Going Public Means for The Music Industry: Featured image courtesy of Toru Yamanaka/AFP/Getty Images

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