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Spotify raises $1B in debt with devilish terms to fight Apple Music

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Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#91

Post by jrowley »

spriggan3 wrote: post #88
philliphaydon wrote: post #50

Spotify waste so much money on their employees, who effectively do very little. I know a designer who has been there 2 years, basically sits in meetings and gets sent to different countries, and has added nothing to their portfolio. Yet gets reviews and raises and bonuses... Then there's all the parties they host for their employees, etc. It's not a company I would invest in if I had any money to begin with. Also tha…

> Spotify waste so much money on their employees, who effectively do very little Plenty of businesses waste money on some employees who effectively do very little, like diversity officers, equality consultants and such useless positions ... The problem isn't them , the problem here is Spotify unstustainable business model, period. They will go down, sooner or later. The fact that they had to take a loan means they ca…

A diversity officer isn't necessarily a waste of money. They can be crucial for ensuring a solid company culture that levages talents from a diverse pool of people. If you make your company inhospitable to groups of employees based on their race or religion you are only hurting your bottom line.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#92

Post by Trundle »

jacquesm wrote: post #84
Trundle wrote: post #83

Earlier quoted context omitted.

I don't understand where you're saying that employees aren't also going for a home run or bust outcome. That's exactly what they signed up for when they took that job instead of with a more established company. "Bust" is the most likely outcome when you sign up to work for a startup, so unless their goals/wants have changed I don't see why they'd want to jump ship now.

The Spotify that raised it's initial round has a completely different risk profile than the Spotify that exists today. Employees as a rule are not looking at the company in the same way that investors and founders do. If you have evidence that employees as a rule understand the amount of risk involved and that they understand fully that the most likely value of their stock options is zero then I'm definitely all ears…

I don't think blame is relevant, they haven't done anything wrong, just potentially not ideal for themselves. If you're coming from the point of thinking that you know better than the employees on how to achieve their goals, and that they shouldn't be gambling their time hoping for a hugely successful company, then your argument does make sense.

However if that's the case, it looks like you've just used a lot of words to effectively say "Accepting equity as payment for working at a startup is a poor decision so therefore employee interests were never aligned with those of the founders".

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#93

Post by jperras »

jsjohnst wrote: post #53
chvid wrote: post #48

Earlier quoted context omitted.

Would it not be possible for an employee to hedge/short-sell the stock using i.e an option?

I'm not familiar with Spotify's terms with employees, but it's not uncommon for this to be expressly forbidden in the stock option / Rsu grant agreement.

They could perhaps buy call options against their direct competitors (Apple and Pandora, even though the latter is doing terribly) in the event that the IPO goes poorly, but that would essentially require that Spotify losses be countered by gains in the competitors, which is of course not a guarantee.

Basically: they're kinda fucked if it goes south.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#94

Post by jacquesm »

Trundle wrote: post #92
jacquesm wrote: post #84

Earlier quoted context omitted.

The Spotify that raised it's initial round has a completely different risk profile than the Spotify that exists today. Employees as a rule are not looking at the company in the same way that investors and founders do. If you have evidence that employees as a rule understand the amount of risk involved and that they understand fully that the most likely value of their stock options is zero then I'm definitely all ears…

I don't think blame is relevant, they haven't done anything wrong, just potentially not ideal for themselves. If you're coming from the point of thinking that you know better than the employees on how to achieve their goals, and that they shouldn't be gambling their time hoping for a hugely successful company, then your argument does make sense. However if that's the case, it looks like you've just used a lot of word…

> If you're coming from the point of thinking that you know better than the employees on how to achieve their goals, and that they shouldn't be gambling their time hoping for a hugely successful company, then your argument does make sense.

I'm perfectly ok with it if employees were actually given all the relevant bits of information and if they actually were aware of all the potential outcomes. There is a lot of selling going on here that I'm not ok with.

And yes, I've used a lot of words to say exactly that. Thank you for putting it more concisely, the risk:reward ratio for employees and founders is vastly different. Founders 'risk everything' but looked at in a different way founders risk just as much - their time, and the potential upside for a founder is much, much larger than for an early employee.

Oldest game in town.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#95

Post by spiralpolitik »

joshjkim wrote: post #77
mrep wrote: post #51

Earlier quoted context omitted.

> they are not profitable at current scale How? They are making approximately a 1 billion dollars a year (30 million subscribers * $10/month * 12 months/year * 30% cut). Their engineers are probably paid less too since they are not based in the US. The only thing i can suspect that they are blowing that much money on is marketing but even that just seems ridiculous unless they are losing that much on the freemium use…

There's a couple answers here - as you mentioned, marketing is a huge cost, and they have to support a massive global ad sales organization as well to support the free tier. IMO, what's really more problematic and complicated is their economic arrangement with the major labels, which, while ostensibly "70/30" is actually way more complicated than that. The article does a decent job of explaining it: http://www.thever…

This is Spotify's main problem.

They own nothing and sharecropping with other peoples property never ends well. The labels can bleed them to within an inch of their life without any risk as there are other companies with additional revenue streams to support themselves that will offer better deals and take up the slack.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#96

Post by Alex3917 »

owenversteeg wrote: post #10

Jesus Christ, that's not clickbait, those really are devilish terms. It's debt, they lose $200MM of shares at the time of IPO, and they very well could end up paying 15% interest yearly on this. And when the IPO happens, if it follows the general IPO trend and tanks at first, it's very possible TPG and Dragoneer will want to get out -- dumping 1.2 billion of Spotify onto the market and absolutely destroying the share…

I actually think discounts and participation caps would conceptually be much better if they were tied to IRR, as long as there are boundaries on each end. I get that in practice fixed values are used because they make the math easier and save lawyer hours, but it's a horrible misalignment of incentives.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#97

Post by jevinskie »

estreeper wrote: post #49

This doesn't seem that surprising. 2014 Revenue: $1.3 billion (up 45% from 2013) 2014 Net Loss: $197 million (up from $68 million loss in 2013) That's a lot of money to be bleeding and losses are increasing even as revenue grows. If you wondered why they got terms like this, that would explain it. You can call it getting "strategic resources" if you like, but I call it running out of cash. http://www.nytimes.com/2015…

Is this because their product offering is not as good as their competitors? I switched to Spotify over services like streaming radio (Pandora) and cloud music storage (Amazon Music) a couple of years ago. Haven't looked at the competition much since. I heard that Apple Music, the one potential competitor I was considering switching to, was buggy. I've been frustrated with Spotify bugs in the past but have found that I've adapted and most have been removed, so I never switched. Are the quality of the services really represented in the company's valuation?

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#98

Post by brisance »

chvid wrote: post #48
joshjkim wrote: post #2

"TPG and Dragoneer can sell their shares just 90 days after the IPO, before the 180-day lockup period ends for Spotify’s employees and other investors." Among many the bad terms disclosed in the article, IMO this is probably the worst - basically, this right is a license to cash out and torpedo the company within 3 months (just the right amount of time to see how the market reacts to Spotify's first earnings call as…

Would it not be possible for an employee to hedge/short-sell the stock using i.e an option?

Spotify isn't listed so any form of derivative contract is not standardized and is thus subject to liquidity and counterparty risks.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#99

Post by roycehaynes »

Streaming music requires money to pay royalty fees. The more users listen, the more money Spotify owes to record labels, artists, writers, and others who make music possible and accessible.

It's an art (not a science) to deliver a service (for next to free), while making a profit after paying royalties.

Spotify raising a billy debt round doesn't surprise me.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#100

Post by prostoalex »

matwood wrote: post #63
themartorana wrote: post #38

Earlier quoted context omitted.

It helps that Apple Music has been relatively terrible from the start. I fully expect them to get significantly better, but after Rdio died (RIP, and I got over my mourning) I did the Apple Music trial plus a couple months. Both the wife and I found it incredibly difficult to navigate and understand. Spotify has been much, much better. That said, Apple Music is only going to get better, and fast.

It's odd to me how Google Music is not often mentioned. It is either Spotify or Apple Music. I quit Spotify years ago when Google Music started, having never really cared for Spotify.

Same here. I switched to Google Music via their $1 intro offer, and so far haven't bothered to look anywhere else. They throw in an ad-free YouTube, so Google's offering is strictly better in that regard.
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