Here's What Fans Need to Know About Spotify's Stock Market Debut
Will the service change? How will it impact artists? Should you buy stock?
It's official: Spotify is finally public, closing its third day on the New York Stock Exchange (Apr. 5) at $143.99 per share -- a 2.9 percent increase from its opening share price on April 3.
But will any of this impact Spotify’s 159 million monthly active users and 71 million paying subscribers or the artists they love? Below are five things to know about the public listing for music fans.
Will Spotify going public change my experience on the streaming service itself?
In preparation to go public, Spotify spent much of 2017 renewing its multi-year licensing deals with all the major labels, as well as with indie-label organization Merlin. This means that you can expect all the music you love to remain on the service and Spotify’s music catalog will only continue to grow as more artists around the world jump on board.
But in order to become profitable, Spotify has ambitions to become much more than just a music service and has listed expanding "non-music content and user experience," such as videos, podcasts, audiobooks and news -- which can cost it much less than music -- as a key growth strategy in its SEC filing. The service is already ranking podcasts higher on some users’ homepages and is bringing non-music partners like BuzzFeed and Refinery29 onboard for its multimedia "Spotlight" format, which enables creators to overlay looping videos on top of audio content.
On the video side, within the span of just two days last week, Spotify announced exclusive vertical videos from both The Weeknd and Taylor Swift that users could find on flagship playlists like Today’s Top Hits, Are & Be and Pop Rising. This is a continuation of early experiments with RapCaviar that combined audio and video content into a single landing page for the playlist and seems to be taking a tip from Apple and Tidal in terms of embracing exclusive content strategies with the industry’s biggest stars.
In short, Spotify wants you to be much more than just a music consumer, so expect to see even more exclusive videos, podcasts and other multimedia content in the coming months.
How will Spotify's going public affect the price of my monthly subscription?
If Spotify follows Netflix’s trajectory as a public company, your monthly subscription price may increase in the long term. In Oct. 2017, Netflix raised its $9.99/month plan to $10.99/month and its $11.99/month plan to $13.99/month -- though that was over 15 years after going public and over 10 years after first launching its video streaming product.
But in the nearer term, Spotify might actually be lowering its prices and embracing discounted bundles with other products, in a race to attract subscribers and maintain its leadership in the competitive music-streaming landscape, competing with streaming service operators like Apple, Alphabet and Amazon, tech giants that can easily afford to offer subscriptions at reduced rates.
Spotify already offers a $4.99/month discounted subscription for students and a $14.99/month family plan for up to six premium users -- both of which are "higher-retention products," according to the service's SEC filing, and which will therefore remain crucial for the company moving forward. As for bundles, Spotify already has discounted offerings with Hulu and the New York Times and will likely pursue more partnerships with brands and telcos as part of its user acquisition strategy.
Looking internationally, Spotify’s monthly subscription prices in Thailand, Philippines, Malaysia and Indonesia cost only $2 to $5 a month. Music’s market value in many international territories is much lower than the standard $9.99 as Spotify further expands globally -- most recently into Israel, Vietnam and South Africa.
How will this affect my favorite artists?
Have no fear, for now: all three major labels have said they will share earnings from their stock sales with their artists. Indie trade organizations, including A2IM and WIN, are also pressuring majors to pledge profit-sharing with the indie labels that they distribute, such that indie artists can also cash in properly on wider economic successes.
How exactly those artist payouts will work, however, has yet to be determined. Do artists who signed to and/or left their contracts with labels after they bought Spotify shares receive any benefits? What about the artists who were racking up tons of streams when the labels first received their shares, but are not generating as much activity today? No standard answers to these questions exist, because the situation is unprecedented.
In general, though, Spotify wants to stay close with the creative community, though it’s currently embroiled in a handful of copyright infringement lawsuits from songwriters and publishers, worth over $1 billion in total. The service has taken steps to improve relationships with artists and songwriters, setting up the dedicated content hub Secret Genius and more recently displaying songwriter and producer credits (where available -- and there remains an alarming amount of missing information).
If all goes well, fans can expect to see richer information and context around their favorite artists on the platform -- and fatter wallets for the artists themselves.
How have other streaming companies' stocks fared?
Other streaming companies’ stock prices are seeing downward trends of their own, independent of Spotify’s initial performance.
Pandora is valued at just $1.25 billion today, compared to well over $4 billion in late 2015, the year it acquired Ticketfly and tried to make a dent in the live music business (Pandora has since sold the ticketing startup to Eventbrite). Over the last 10 days, Pandora's stock price has fallen by over 11 percent, from $5.33 to $4.73 per share.
TV streaming company Roku’s stock has fallen by a concerning 17 percent over the last month, from $39 to $32.27 a share.
Netflix’s stock price has been hovering at more or less the same level month-over-month, although the last 10 days saw the price fall by nearly 10 percent as well, from $320.35 to $288.94 per share. That’s still more than twice Spotify’s stock price and many investors are pointing to Netflix as a growth and profitability benchmark for the music streaming company, in terms of both global reach and original content output (perhaps to a fault).
Music is just a drop in the commercial bucket for big-tech competitors Apple, Google and Amazon, so their stock price movement is pinned more to wider market moves than to music-specific events. In fact, a day before Spotify's public debut, larger tech stocks dragged down the Nasdaq Composite Index by 2.7 percent and the S&P 500 by 2.2 percent, for a myriad of reasons -- including but not limited to President Donald Trump's criticism of Amazon and Facebook's ongoing data privacy scandal.
Should I buy Spotify stock?
The jury’s still out on this one. On one hand, Spotify debuted above private-market expectations this week and many are commending CEO Daniel Ek as a visionary leader for the company -- including those who were Ek's harshest skeptics just a few years earlier.
On the other hand, Spotify has yet to make a profit after over a decade of existence. While there’s still a massive growth opportunity for streaming globally, Spotify’s individual acceleration as a company might run into persistent challenges from Apple, Amazon and Google -- which not only have the advantage of deeper pockets to invest in content without worrying about returns, but also own and make better margins from many of the physical distribution channels for music today (read: phones, smart speakers and even cars).
Spotify is allegedly manufacturing its own hardware, but that may be a costly distraction from the fact that the service still needs to give away more than 70 percent of its revenue to rights holders. It may be worth waiting to see whether the company can truly pull off its vision of becoming a "two-sided marketplace," rather than just a distribution channel and turn its unfavorable profit picture around for good.