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Life After Pablo: Where Does Tidal Go From Here?

It’s been a little less less than a year since Jay Z bought Aspiro — the Swedish company behind the streaming service Tidal — but it’s been a pretty, um, eventful almost-12-months. The whole endeavor probably reached its nadir at its garish, grotesque Opening Day event, which means it’s had nowhere to go but up … and yet, it has somehow failed to gain much if any ground at all, stalling out right around its own 5 yard line, never quite parlaying its assets into successes. PR has been dismal. Upper-management personnel have come and gone with the frequency of interns. Growth has been slow, especially relative to the scale achieved over the same timeframe by streaming music’s big dogs. Jay’s stated mission — to build a music-streaming platform that first and foremost benefits musicians — has been muted, inconsistent, and unclear. The equity-holding artist-owners enlisted by Jay post-acquisition haven’t helped matters. To the extent those owners have spoken publicly, they’ve offered statements that are contradictory, confusing, or altogether gormless. (I’m looking at you, Win Butler, Madonna, and Jack White, respectively.) Few of the others have spoken at all. Has Alicia Keys said a damn thing about Tidal since wrapping up her pompous, Nietzsche-fied introductory statement?

Last October, Jay was seen leaving the San Jose offices of South Korean telecommunications conglomerate Samsung, a sighting soon followed by speculation that the two parties were discussing a deal involving Tidal. Without knowing the details (and, to be clear, the details are so wildly scattered that I’m not sure if even Jay could break them down for you), it seems reasonable to say such a sale would have been a net win for Jay, financially speaking. He purchased Aspiro for $56 million, but by April 2015, the service was reportedly valued at $250 million. Nothing came of that meeting, though — at least nothing yet.

Meanwhile, the hits kept on coming! The second nadir arrived at the very end of January 2016, when someone — maybe someone at Tidal, maybe someone at Universal Music Group, depending on whose finger you choose to follow — made an unfortunate “system error,” resulting in Rihanna’s endlessly anticipated ANTI being leaked — and not just leaked, but leaked on Tidal! — well in advance of its intended release date. This wasn’t just your everyday gaffe, either. Jay had negotiated a massive $25 million promotional campaign via which Samsung would effectively sponsor, oversee, and brand the fuck out of both the album’s release as well its subsequent tour. (I find this to be an absolutely fascinating story, but I won’t re-tell it in full here, because I’ve already told it in full elsewhere.) Samsung took a big L on the album, but hey, there was still the tour, right? Not so much, it turns out! Rih’s cross-continental jaunt was put on hold for a month — allegedly due to “production problems” (the “system error” of the live-music world) — with some European dates being downsized significantly and others being cancelled entirely.

So … the end? Nope. Remarkably, Tidal saw its fortunes rise in the days following the ANTI disaster, on the shoulders of the music and musicians claimed by Jay to be his service’s top priority. First, there was ANTI, whose difficult delivery seems like an afterthought in the shadow of the outstanding music offered on the album. Second, there was Beyoncé’s “Formation,” a fucking world-beater that somehow overshadowed the Super Bowl itself. And third, there was The Life Of Pablo: the most talked-about album of the year by the most vital artist in the world today, and an absolute destroyer from front to back.

Earlier this week, it was announced that Tidal subscriptions more than doubled after the platform-exclusive “release” of TLOP, from somewhere in the 1 million range to somewhere in the 2.5 million range. Now, I find that updated number to be a bit unconvincing — I don’t think all or even a majority of the new subscribers signed on for paid memberships, but a trial freebie instead — but even so, that’s an example of Tidal’s model operating at peak efficiency. That should be a reason for Jay to double down, to bring more artists into the fold, to secure more exclusives, to build the very product he claimed to be building all along, based on the fair-trade ideals he was preaching at the very first stages of this journey.

Instead, it appears Jay has re-entered negotiations with Samsung, who are once again reportedly interested in acquiring Tidal. Per the New York Post, “several sources” are reporting that Samsung has “restarted talks to acquire the 16-month-old company.” Said one of those sources:

Samsung is re-engaging; they are working on something really big, and they’re keeping it very quiet in case it leaks.

But hey, wait, it’s not just Samsung! Both Spotify and Google are apparently in the mix now, too:

Both [Google and Spotify] believe Tidal, although struggling, can bolster their own digital music services.

Talks the companies are having with Tidal now appear to be aimed at smaller partnerships, sources said.

Spotify has discussed creating an initiative that could produce a Tidal “powered by Spotify” partnership rather than an acquisition.

Wild, huh? Let’s leave aside Billboard’s assertion that the Post’s report is bunk, and let’s assume, for the moment, that those potential partnerships with Google and/or Spotify wouldn’t have any affect on a majority-share acquisition by Samsung: How exactly does Jay justify jumping into bed with two of his biggest rivals? Remember this? “I don’t take no checks, I take my respect”? How does he position a Samsung acquisition to his fellow artist-owners, not to mention the subscribers who signed on in support of Jay’s music-first vision?

Maybe it doesn’t even matter anymore. Maybe he’s just fucked either way, but this way, he doesn’t go bankrupt chasing an impossible dream.

To that end, the Post offers some more insight (again, from anonymous sources, so take that into account here):

[The company’s] dysfunction, though common to many tech startups, has been eating into Tidal’s financing.

“The pressure is definitely on,” said one source who confirmed that Tidal is having trouble paying some of its royalty bills on time.

In addition, Jay Z has reached into his own pocket to help boost the music streamer, another source noted.

“Tidal certainly needs a new home to stay alive,” said a music industry insider.

I haven’t seen the company’s books, so I really have no fucking idea if that’s true or not, but it all sounds pretty reasonable to me based on what little I do know. You might remember, Jay brought Tidal into this world expecting Sprint to be a partner and source of seed funding — announcing as much on Day One, in fact — but Sprint either bailed when they saw the prospectus/presentation/response, or they were never as close to completing a deal as Jay believed them to be. Maybe Jay was just bluffing; maybe he was just saying Sprint was onboard when they were still safely ashore, in the hopes that public sentiment and support would be so overwhelming that Sprint couldn’t do anything but get on the boat (or risk a PR nightmare). It certainly wouldn’t have been the worst miscalculation Jay made at that moment in time. In any case, with Sprint backing away from the dock, waving goodbye, as Tidal set off on its Titanic voyage, Jay didn’t have a bank to rely on beyond his own. And running a streaming service is very expensive! How much? Well, the numbers fluctuate too much to say with any certainty, but for the sake of broad comparison: According to Bloomberg, as of May 2014, Spotify — the biggest on-demand streaming service in the world — had lost $200 million since being founded in 2008. That’s after six years of expansion, nearly all of which were spent operating in the music-streaming space with little in the way of viable competition. By the time Jay launched Tidal, meanwhile, Spotify had been signing up subscribers for nearly seven years. And two months after Jay launched Tidal, Apple Music arrived.

But wait, it gets worse! Per the Post, that $250 million valuation bandied about last April was way off. Instead?

[Tidal] is now valued at about $100 million, according to sources in the streaming space.

So if he’s flipping this property to Samsung at that valuation, he’s not exactly making a killing. I mean, he’s also not gonna be selling Basquiats on eBay to keep Blue Ivy in Supreme, but he might not actually see a dollar of profit, either, and he might even lose a few bucks on the deal when all is said and done. Remember, he dropped $56 million to acquire this money pit; then he handed out equity stakes to 17 other musicians (presumably in exchange for endorsements and exclusives rather than actual money), all of whom would be entitled to a percentage of any sale. Then he churned through CEOs like Joe Girardi churns through bullpen arms in a tight game — and it costs real money to both bring on and lay off people in those types of positions. God only knows how much money he burned on promotion; he’s probably got a customer-acquisition cost of like $1000 considering all the Tidal-branded events he’s put on in Brooklyn as well as the advertising campaigns he’s launched. And that’s above and beyond the gargantuan costs of just keeping a streaming service running. Consider this tidbit from Bloomberg’s must-read May 2015 feature, “Why Jay Z’s Tidal Is A Complete Disaster”:

When [Jay Z] acquired Aspiro, the change of ownership meant he had to renegotiate its streaming contracts with the three major record companies: Universal, Warner, and Sony Music Entertainment. Universal distributes the records of some of Roc Nation’s artists, so Jay Z was able to quickly reach an agreement with that company. But music industry people who are familiar with the negotiations and forbidden from discussing them publicly say that Sony and Warner are asking Tidal for large advances in return for the right to feature their artists’ catalogs.

For some context on what “large advances” might amount to in US currency: Last May, the Verge published a contract between Spotify and Sony, signed in January 2011 — months before Spotify launched in the US — similar to the ones Tidal would be required to sign. Based on the terms stated in that contract, the Verge calculated, “Spotify paid Sony Music up to $42.5 million in advances.”

In advances! That’s before paying out a single royalty. Now, Tidal’s arrangement with Sony might not approach that number, because of the vast disparity in subscriber numbers and the benefit of five years’ hindsight, but then again, this is not a company with money to burn. So it makes sense that Jay is looking to get out while the getting is good. If he does, he’ll have Rihanna, Beyoncé, and Kanye West to thank for bailing him out. The big question, then, is this: Will they thank him?

Tags: Jay-Z, Spotify, Tidal