Why Spotify’s IPO Is Important
Unless you’ve been living under a rock, you probably know what Spotify is. Spotify is a subscription-based music streaming service you can use on your phone, computer, tablet, or any other type of newfangled digital device that hooks up to the Internet. The Swedish company is extremely profitable, partly because it offers a free service that generates revenue from advertising, as well as its subscription-based users who pay $10/month. Since it has to pay money out to the artists in its inexhaustible library, some investors might worry that their business model is flawed.
The company finally went public in one of the biggest tech IPO’s in recent history. While many Spotify staff members immediately dumped their shares to cash immediately, most analysts gave the company a strong endorsement, predicting that it will go nowhere but up.
One thing to consider is figuring out what exactly Spotify’s product is, and what this IPO means for the financial world and for culture at large. The closest thing you could compare it to is Netflix, which most analysts would argue is overvalued (Netflix is still losing money as a business). However, there is one crucial difference between Netflix and Spotify: Netflix produces content on a large scale, which can be seen, in addition to the series it’s bought the rights to, as the product it is offering consumers. Spotify, on the other hand, has yet to produce anything at all other than the interface that gives users access to an infinite world of music: the company facilitates, it does not produce, and for some, this seems to be perplexing.
In the music industry, many artists accuse Spotify of short-changing the artist; whoever holds the rights to the music makes 70%, leaving a meager 30% for Spotify and the artists to split. If Spotify becomes the dominant way that we consume music, it will be incredibly advantageous for musicians to remain independent, claim that 70% and let the old label system crumble. Otherwise, musicians will be scrambling to make a living from the trickle down of fractions of pennies over the years.
While it’s unclear whether or not Spotify will become smart, lucky and bold enough to find a way to appease recording artists, their clients and investors will remain to be seen, but one thing is for certain: the music industry is drifting into an uncharted and exciting territory. If you were discouraged from taking music lessons, you may want to think again. Producing and promoting music through a grassroots social media campaign is becoming a more popular route, and while musicians are never going to get tens of thousands of dollars for advances, new avenues are opening up so that you’ll have a solid shot at making a living producing music.
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