Why Sprint’s $200 million bet on Jay Z's Tidal makes sense
Sprint announced on Monday it has acquired a 33% ownership stake in Tidal, the music streaming service that Shawn “Jay Z” Carter purchased in 2015.
The deal is reportedly worth $200 million, Billboard says, citing a source. That would value Tidal at $600 million, which would mean Jay Z has managed to wring quite a return on the $56 million he spent to buy Swedish tech company Aspiro, including Tidal and a service called WiMP.
The value of the deal is especially surprising considering the many problems at Tidal: three CEOs in its first year; confusion over ownership of songs by the rapper Drake, who initially signed on to Tidal but backed out two days before the launch event to sign with Apple Music; lawsuits galore, from Cash Money Records CEO Birdman suing Tidal over a Lil Wayne album to Carter suing the original Tidal owners for inflated user numbers to a class action against Tidal for promising Kanye West’s album would be a permanent Tidal exclusive to Prince’s estate suing Roc Nation for Tidal streaming Prince’s catalog; and most importantly: furiously-disputed subscriber numbers.
No one knows how many subscribers Tidal really has
Last April, Tidal announced it had 3 million paying subscribers and that 45% of them pay for the pricier, $20-per-month super premium “HiFi” version. In May, Tidal told the New York Times it had gained 1.2 million signups in the first week that it had Beyonce’s “Lemonade” exclusively; that led many to report Tidal at 4.2 million paying subscribers. But a report just this month from Norwegian paper DN.no accuses Jay Z and Tidal of inflating its numbers threefold; it suggests that Tidal had as little as 850,000 subscribers when it said it had hit 3 million. And Aspiro lost $28 million in 2015 under Jay Z.
All of this raises the question of why Sprint, which is majority-owned by SoftBank, would see the deal as worthwhile. Why would it spend $200 million to own one-third of a music service that might have only 1 million paying subscribers? (For comparison, Spotify now has 43 million paying subscribers, while Apple Music has 20 million.)
The answer lies in Tidal’s 20 “artist owners,” and in the rapid growth of music streaming services.
Sprint gets access to 20+ big-name artists
In addition to Jay Z and his wife Beyonce, 20 different artists have ownership stakes in Tidal: Alicia Keys; Arcade Fire; Calvin Harris; Claudia Leitte; Coldplay; Daft Punk; Damian Marley; Deadmau5; Indochine; Jack White; Jason Aldean; J. Cole; Kanye West; Lil Wayne; Madonna; Nicki Minaj; Prince (his estate); Rihanna; Cliff “TIP” Harris; and Usher.
Each of those 20 artists reportedly has a 3% stake (Tidal won’t confirm), which amounts to 60% without Carter and Beyonce, so clearly the full 66% Sprint won’t own belongs entirely to the artists. As Sprint acknowledges in its press release, “Jay Z and the artist-owners will continue to run Tidal’s artist-centric service.”
But in addition to getting “unlimited access to exclusive artist content not available anywhere else,” Sprint adds these stars to its family, in a sense. This is how it typically works with long-term deals between media or tech companies and celebrity creators. Take Netflix’s new deal with Jerry Seinfeld as an example, or Adidas’s long-term contract with Kanye West, or Intel’s deal with Will.i.am.
Getting an ownership piece of Tidal means that Sprint gets access to Tidal’s artist owners, which means it will almost certainly start using these mega stars in marketing and other promotional content. Look for Sprint + Tidal ads starring Rihanna sooner than later.
Sprint instantly jumps into music streaming
According to a report last week from music industry researcher MIDiA, total paid music streaming subscriptions surpassed 100 million in December. As media outlets were quick to interpret, that’s more than the 86 million subscribers Netflix has.
MIDiA puts Spotify at 43 million, Apple at 20 million, Deezer at 7 million, and Tidal at only 1 million.
But the larger story is that even with giants like Spotify and Apple dominating, the subscribers are still growing and there is still a large runway to obtain more, which means there is room for new services to compete. (Apple was rumored to have met with Jay Z about buying Tidal, but Apple Music chief Jimmy Iovine splashed cold water on it in September, telling BuzzFeed, “We’re not looking to acquire any streaming services.”)
Apple offers its streaming service on Android now; Verizon has a video and music service called go90; Sprint, eager to compete with its larger telecom rivals, wanted in. By getting a piece of Tidal, it’s instantly a relevant player in this world. (One wonders whether Samsung, which has an existing endorsement relationship with Jay Z, considered a move on Tidal.)
“The music market now is a dramatically different one than that which existed 12 months ago when there were 67.5 million subscribers,” MIDiA writes on its blog. “Revenues are growing, artist and songwriter discontent is on the wane and label business models are changing.”
Sprint’s 45 million customers will still have to pay for Tidal if they want to join, but will get early exclusives, which has been the cornerstone of Tidal’s pitch since day one. And Sprint, which lost is No. 3 slot to T-Mobile last year among US mobile carriers, needs a boost with young people—the kind of customers who are glued to their mobile phones and might conceivably switch to T-Mobile if it means exclusive songs and videos from Beyonce, Rihanna, and Kanye.
Sprint is staying silent on exactly what “unlimited access” will mean for Sprint customers on Tidal. “More news on exclusive offers, what this exactly means for current and new Sprint customers, and upcoming promotions from Sprint and TIDAL will be unveiled soon,” a spokesperson says. But Sprint CEO Marcelo Claure will join Tidal’s board of directors, which suggests Sprint will be intricately involved in Tidal’s operations, perhaps even in the much-needed effort to market it better.
Critics can say Tidal isn’t worth $600 million, and considering its small subscriber base, it’s a fair point. But to be fair, Tidal has been around just 2 years, while Spotify has been around 10. Sprint didn’t really pay $200 million for a third of a small music service; it paid $200 million for access to 21 big stars and for instant relevance, even if small, in the music streaming wars.
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.
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