Twitter is hoping to raise $1 billion in an initial public stock offering. What does it mean to the music business? Not a whole lot.
An IPO is a confirmation of a company's revenue-generating capabilities and business model. Twitter would not have attempted an IPO a few years ago, when it was unsure about how to monetize its large and growing traffic. But it's in a better place today. Twitter generated $254 million of revenue -- with a net loss of $69 million -- in the first six months of the year. As Business Insider notes, Twitter's revenue is a small fraction of Facebook's $3.3 billion of revenue during the same period. But Twitter is definitely headed in the right direction: revenue in the first six months was up 107% year-over-year.
The IPO won't change much from the music industry's perspective. Twitter was an established promotional tool for musicians well before the IPO. It will continue to be a vital tool well after the IPO.
Musicians have played an instrumental role in adoption of Twitter and the traffic the company can now monetize. To be sure, celebrity musicians like Justin Bieber, Katy Perry and Lady Gaga -- the top three Twitter accounts, according to TwitterCounter.com -- have certainly played a role in getting Twitter to 215 million monthly active users. Without celebrities, fewer people would have started using Twitter.
But music is not solely responsible for Twitter's growth and global footprint. The platform is a basic promotion and communication tool for all sorts of people and companies. President Obama has the fourth-most Twitter followers. YouTube and Instagram are #6 and #9, respectively. And where would Twitter be without internationally known soccer players? Cristiano Ronaldo and Kaka are #15 and #26, respectively.
In the context of the music business, Twitter's IPO is mostly symbolic. It signals the sturdiness of Twitter's business model. It reflects the company's ability to generate revenue. It shows the company's foundation is strong enough to withstand Wall Street's scrutiny.
So, musicians, celebrities and other avid Twitter users, feel free to savor your role in the growth that led up to Twitter's IPO. But that's about all you can savor, because you won't be sharing in the fruits of the IPO.
Twitter's IPO will benefit early employees, key executives, investors and whoever acquired shares on the private market. This is what happens when a venture-funded company uses an IPO to shift financial risk to public shareholders. People cash out. They don't charitably give money to people who didn't own a stake in the company.
No financial benefit will directly accrue to the celebrities that helped get Twitter this far. Social media IPOs are fundamentally different than other IPOs. People give social media companies free content -- how else could Facebook have such great margins? If, on the other hand, a number of music companies will benefit if Spotify one day has an IPO. Music companies acquired an equity stake in Spotify as a part of licensing deals. Since music companies don't license content to Twitter, there was no opportunity to grab equity.
All that said, the IPO could impact the music business in two ways: acquisitions and advertising products.
Twitter has spent $640 million in cash and stock on acquisitions over the years. The purchase that has most directly impacted the music business was We Are Hunted, which was turned into the Twitter Music service that launched in April. Twitter has had the ability to acquire music startups with or without an IPO, but an IPO will definitely provide a capital infusion that would allow for more, and possible larger, acquisitions.
What music startups could Twitter acquire? One that comes to mind is SoundCloud, the online music hosting and sharing platform. SoundCloud is arguably more valuable as a part of Twitter than as a standalone company or a part of another company. It has proved to be an incredibly popular platform for sharing music and other forms of audio. It does not license content. Twitter and SoundCloud could have a symbiotic relationship: a tighter integration of the two services would benefit both of them. One factor that could facilitate an acquisition: Union Square Ventures has a stake in both Twitter and SoundCloud.
Another impact on the music business could come from the introduction of advertising products. Just as Facebook has become more focused on advertising revenue after its IPO, Twitter will expend a great amount of time and resources building and launching advertising products to grow revenue. The pre-IPO period was about growing traffic. Post-IPO, Twitter will be at the beck and call of investors and analysts who expect a clear roadmap and quarterly gains.
Why would new advertising products matter? Unpopular advertising products could impact usage of the platform, posing a risk to musicians and other users of the platform. Lower traffic will decrease Twitter's power as a promotional and communication tool. Marketing campaigns, product updates, YouTube links and other various tweets are effective only to the extent they're viewed and shared.
Separate from the IPO, Twitter will have a role in the shape of the future music business. Most notably, the company should play a greater role in e-commerce. It just hired Nathan Hubbard, the former Ticketmaster CEO, to be its Head of Commerce. Twitter also hired Bob Moczydlowsky away from music e-commerce company Topspin Media to be its head of music. Neither hire appears related to the IPO, but both hint at the greater role Twitter will play in helping musicians and music companies monetize their presence on the platform.