Are the terms of Spotify’s new billion-dollar debt round “onerous“?
What Does Spotify Want to Buy With a Billion Dollars?
Here’s a guess: Videos.
Michael Loccisano / Getty Images for Spotify
Peter Kafka covered media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.
Or not so bad, when you really think about it?
Hilariously, you can read both arguments here.*
Next question, which is one lots of people in the music industry are asking: What does Spotify want to do with a billion dollars?
And here are some theories, variously offered by people in and outside of the company:
- Spotify, which has never made a profit, figures that winter is coming and that an IPO will take some time, so it is loading up on cash while it can.
- Spotify wants to use the money to buy rival services, like Pandora or SoundCloud.
Both of those seem sort of plausible. And they’re also easy to question.
For instance, as the Wall Street Journal has already noted, the terms of the new debt round set a ticking clock on Spotify’s IPO and will pressure it to go public sooner than later. And even though investors aren’t happy about Pandora’s new CEO, they still value the company at more than $2 billion. Spotify isn’t buying that company any time soon.
So here’s another theory, suggested by yours truly: Spotify is going shopping for video.
Up until now, Spotify has made all of its money from music. But for many years, Spotify’s (private) pitch to investors has been that it will grow beyond music and into video.
The idea is straightforward: Spotify already has lots of users — 30 million paid subscribers worldwide, and many more listening for free — so why not give them something else to do besides listen to music? You can sell that attention to advertisers. And maybe, one day, you could even sell video as an additional subscription tier.
And as a bonus, a video offering would reduce the company’s dependency on the three big music labels.
Spotify announced its move into video last spring, and finally rolled out an offering early this year. But so far this is a toe-in-the-water exercise.
Spotify isn’t offering its users anything they can’t see anywhere else, and what it is offering — a smattering of clips from the likes of Comedy Central, Vice and the BBC — isn’t easy to find. In other words: Spotify is a music service that also offers a couple videos.
If Spotify wants to change that, it will need to pay up and shell out for videos its users can’t easily find on YouTube, or Facebook, or Snapchat, etc.
And that won’t be cheap: The market for video is booming, fueled by the deep pockets at Netflix and Amazon, who have recently been joined by new players like Verizon, which is writing checks to anyone, for anything, that it can run on its Go 90 service. Now Facebook says it wants to spend money on video, including NFL games, if it can land them.
Spotify can’t hope to go head to head with any of those players, who have nearly unlimited resources. But a billion dollars can at least get it into the game.
* But for what it’s worth, people who are not paid by Spotify tell me the company was able to raise the round with little trouble.
This article originally appeared on Recode.net.
