Warner Music Group sells Spotify stake worth over $500 million

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Warner Music Group's sale of a large Spotify stake is not out of lack of confidence in the business model, but rather because the music company doesn't want to hold equity long term, said the media company's CEO.

Daniel Eck


The music conglomerate Warner Music Group announced Tuesday that it has sold its entire stake in streaming company and Apple Music competitor Spotify. The deal netted WMG $504 million, according to Variety. The company had earlier announced the sale of 75 percent of its Spotify equity.

One of the "big three" record label has maintained the Spotify purchases from the IPO. Sony Music recently sold 50 percent of its Spotify stake for around $750 million, while Universal Music Group maintains its shares.

As a result of the sale, WMG will credit $126 million to artist accounts for their June 30 royalty payments.

Back in May, Warner Music Group CEO Stephen Cooper gave his rationale for selling the shares.

"Just so there won't be any misinterpretation about the rationale for our decision to sell, let me be clear: We're a music company, and not, by our nature, long-term holders of publicly traded equity," Cooper said. "This sale has nothing to do with our view of Spotify's future. We're hugely optimistic about the growth of subscription streaming, we know it has only just begun to fulfill its potential for global scale. We fully expect Spotify to continue to play a major role in that growth."

In fact, Cooper had praise for the sector in general.

"While Apple and Spotify continue to grow their global subscriber numbers, Amazon and YouTube are both off to a great start with their premium services," the CEO said on the earnings call, as cited by Variety. "This increased competition is good news for our business, and we're happy to see other large tech companies, such as Facebook, begin to recognize the true value that music brings to their platforms.

Spotify earlier this year launched a nontraditional IPO that led to direct listing on the New York Stock Exchange. The company went on to announce disappointing earnings in May. In July, Apple Music overtook Spotify in U.S. subscriber counts, although Spotify remains larger worldwide.

Warner Music Group is now privately owned by Access Industries, and while it was formerly part of Time Warner, the music company was split off from it long before Time Warner's recent acquisition by AT&T.

Comments

  • Reply 1 of 19
    nunzynunzy Posts: 662member
    AppleMusic FTW!




  • Reply 2 of 19
    SpamSandwichSpamSandwich Posts: 30,099member
    Abandon ship!
    jbdragonStrangeDayswatto_cobra
  • Reply 3 of 19
    irelandireland Posts: 17,452member
    Now that Spotify has 80M so-called paid subs, they need to pull out the blanket and get rid of the free tier.
  • Reply 4 of 19
    lukeilukei Posts: 326member
    ireland said:
    Now that Spotify has 80M so-called paid subs, they need to pull out the blanket and get rid of the free tier.
    Given ad sponsored Radio is still a multi Billion $ business worldwide why would they want to do this?
    edited August 8
  • Reply 5 of 19
    When the insiders are dumping, it means something—even if they try to tell you black is white. 

    They know better than anyone, and they don’t think they’ll ever get more for their shares than they will right now.

    If Spotify had to pay regular rates for free tier streams, they never would have gotten to an IPO—which is what Sony, Warner and Universal have always been in this for. Spotify implodes when cut rate streams for the free tier go to regular rates. 
    watto_cobra
  • Reply 6 of 19
    mdriftmeyermdriftmeyer Posts: 7,159member
    That equity excuse is complete bunk.
    macxpresswatto_cobra
  • Reply 7 of 19
    rogifan_newrogifan_new Posts: 3,404member
    My guess is they will be bought out by someone. Would Apple Music be able to survive on its own if it wasn’t bankrolled by Apple? Doubtful.
  • Reply 8 of 19
    My guess is they will be bought out by someone. Would Apple Music be able to survive on its own if it wasn’t bankrolled by Apple? Doubtful.
    I think any service Apple does will be at least break-even because that's how Apple does things. Anyway, Spotify's market cap is $32B and sporting an EPS of -9.xx. Would you pay $178 a share for this stock? I certainly wouldn't. I'd sure like to know what AppleMusic is valued at by Wall Street's standards. Spotify's high value just smells fishy to me. All the praise of how Spotify is leaving Apple in the dust in terms of subscriber numbers really doesn't seem all that impressive if the company isn't making much money. I'll never understand why high subscriber numbers are always the most highly-valued metric when there's more to running a business than that. I'd think Spotify's free tier isn't helping very much and if business were that good, they wouldn't need a free tier. Now they just kissed $500Mil goodbye and that can't be great.
  • Reply 9 of 19
    jbdragonjbdragon Posts: 1,891member
    lukei said:
    ireland said:
    Now that Spotify has 80M so-called paid subs, they need to pull out the blanket and get rid of the free tier.
    Given ad sponsored Radio is still a multi Billion $ business worldwide why would they want to do this?
    The problem is Radio pays far less maybe even free in playing Music t get the music out there for people to hear. Ad's pay for the radio station to keep their doors open. On the other hand it costs quite a bit of money in streaming music over the Internet. All the MILLIONS of people streaming all that music for FREE is costing Spotify a ton of money. The Ad's are not covering the costs.

    Spotify in fact hasn't made a profit since they first started. In fact they lose more and more money every year. They make more and more money every year, of course, but then they lose more and more money on top of that, keeping them in the Red year after year. They've lost a ton of money. They had it good when it was mostly them only streaming. At this point, they're now having to fight with Google as their default streaming app on Android phones and Apple Music as default on iOS devices. Spotify you have to go out of your way to download the app. So it's getting NEW users that is continuing to get harder to get. Unless Google Music or Apple Music isn't currently in whatever country. Spotify can still grab those. Price wise, they're all the same at this point.

    It's all the FREE users dragging Spotify down. The problem is, all the money they've collected to keep paying for the service to run is based on the number of Total users. They are stuck at this point. They can't toss all the millions of FREE users off the platform. They would go bankrupt pretty quickly. But Keeping the Free users are just continuously dragging them down to not being able to make a profit. They can't win either way. If you think MoviePass is a Bad business Model, Spotify is much worse off.

    https://www.statista.com/chart/4894/spotify-revenue-vs-costs/

    http://fortune.com/2018/05/03/spotify-earnings/

    https://markets.businessinsider.com/news/stocks/spotify-loses-money-on-free-subscribers-2018-3-1018791912

    https://www.rollingstone.com/music/music-news/spotify-hits-180-million-users-and-loses-even-more-money-703781/

    They've been in the RED since 2008. 10 Years of losing greater and greater amounts of money every single year.
    edited August 8 irelandfotoformatdesignrwatto_cobra
  • Reply 10 of 19
    StrangeDaysStrangeDays Posts: 5,835member
    "It's not you, it's us."
    SpamSandwichclaire1watto_cobra
  • Reply 11 of 19
    StrangeDaysStrangeDays Posts: 5,835member
    My guess is they will be bought out by someone. Would Apple Music be able to survive on its own if it wasn’t bankrolled by Apple? Doubtful.
    Would iMessage? Apple Maps? Who knows? Who cares?

    Must always...spread...fear...uncertainty...doubt.
    ronnbestkeptsecretwatto_cobra
  • Reply 12 of 19
    Rayz2016Rayz2016 Posts: 4,337member
    My guess is they will be bought out by someone. Would Apple Music be able to survive on its own if it wasn’t bankrolled by Apple? Doubtful.
    Would iMessage? Apple Maps? Who knows? Who cares?

    Must always...spread...fear...uncertainty...doubt.
    And this kind of the point. 

    Apple builds a whole raft of services that (mostly) work well together. Spotify has built a single service where every new customer can lead to a potential loss.

    The only way streaming can be viable in its own right is if you charge the customer per song instead of a flat rate. And no one would sign up for that. 
    watto_cobra
  • Reply 13 of 19
    claire1claire1 Posts: 478unconfirmed, member
    Don't bite the Apple that feeds you: Googly Sammy, Spotify.
    All companies who bit.

    My guess is they will be bought out by someone. Would Apple Music be able to survive on its own if it wasn’t bankrolled by Apple? Doubtful.
    I think any service Apple does will be at least break-even because that's how Apple does things. 
    Heck no. Apple makes profits. I'm sure Apple is making way more off Apple Music than Spotify is making.

    Apple doesn't like markets that break even or lose money.



    watto_cobra
  • Reply 14 of 19
    lukei said:
    ireland said:
    Now that Spotify has 80M so-called paid subs, they need to pull out the blanket and get rid of the free tier.
    Given ad sponsored Radio is still a multi Billion $ business worldwide why would they want to do this?
    Ad-sponsored may generate Billions in revenue (it doesn't) ads do not generate as much revenue (per listener) as monthly subscriber fees, but the costs of operations remain about the same.  Shutting down ad-sponsored music would increase Spotify's gross margin percent and probably improve cash flow.

    At the least Spotify needs to limit its free streaming to a fixed period (3 months?).
    watto_cobra
  • Reply 15 of 19
    rogifan_newrogifan_new Posts: 3,404member
    claire1 said:
    Don't bite the Apple that feeds you: Googly Sammy, Spotify.
    All companies who bit.

    My guess is they will be bought out by someone. Would Apple Music be able to survive on its own if it wasn’t bankrolled by Apple? Doubtful.
    I think any service Apple does will be at least break-even because that's how Apple does things. 
    Heck no. Apple makes profits. I'm sure Apple is making way more off Apple Music than Spotify is making.

    Apple doesn't like markets that break even or lose money.



    We’ll never know for sure but I’ve heard analysts claim it’s not really a money making business for Apple. Also considering Apple is charging the same as Spotify and rumored to be paying more to labels/artists I can’t see how they’d be making way more off AM than what Spotify is earning. Unless Apple’s 30/15% feed is really eating into Apple’s profits. Though if you sign up via browser Apple gets nothing.
  • Reply 16 of 19
    MacProMacPro Posts: 17,726member
    jbdragon said:
    lukei said:
    ireland said:
    Now that Spotify has 80M so-called paid subs, they need to pull out the blanket and get rid of the free tier.
    Given ad sponsored Radio is still a multi Billion $ business worldwide why would they want to do this?
    The problem is Radio pays far less maybe even free in playing Music t get the music out there for people to hear. Ad's pay for the radio station to keep their doors open. On the other hand it costs quite a bit of money in streaming music over the Internet. All the MILLIONS of people streaming all that music for FREE is costing Spotify a ton of money. The Ad's are not covering the costs.

    Spotify in fact hasn't made a profit since they first started. In fact they lose more and more money every year. They make more and more money every year, of course, but then they lose more and more money on top of that, keeping them in the Red year after year. They've lost a ton of money. They had it good when it was mostly them only streaming. At this point, they're now having to fight with Google as their default streaming app on Android phones and Apple Music as default on iOS devices. Spotify you have to go out of your way to download the app. So it's getting NEW users that is continuing to get harder to get. Unless Google Music or Apple Music isn't currently in whatever country. Spotify can still grab those. Price wise, they're all the same at this point.

    It's all the FREE users dragging Spotify down. The problem is, all the money they've collected to keep paying for the service to run is based on the number of Total users. They are stuck at this point. They can't toss all the millions of FREE users off the platform. They would go bankrupt pretty quickly. But Keeping the Free users are just continuously dragging them down to not being able to make a profit. They can't win either way. If you think MoviePass is a Bad business Model, Spotify is much worse off.

    https://www.statista.com/chart/4894/spotify-revenue-vs-costs/

    http://fortune.com/2018/05/03/spotify-earnings/

    https://markets.businessinsider.com/news/stocks/spotify-loses-money-on-free-subscribers-2018-3-1018791912

    https://www.rollingstone.com/music/music-news/spotify-hits-180-million-users-and-loses-even-more-money-703781/

    They've been in the RED since 2008. 10 Years of losing greater and greater amounts of money every single year.
    Is it's their 'Hobby' ;)
    watto_cobra
  • Reply 17 of 19
    palominepalomine Posts: 360member
    I think the Alex Jones imbroglio has affected Spotify. They gave him a platform and then were late shutting it down.  I saw lots of subscribers complaining on twitter about this. Thousands who said they were canceling. 
    watto_cobra
  • Reply 18 of 19
    wonkothesanewonkothesane Posts: 1,240member
    Spotify, Tesla,.... I don’t get it how these examples receive years and years of investor funding while remaining in the red, and on the other side usually a ROI of a year or less is expected. Are these all long term backers doing it out of deep faithful belief in the company? Who would buy or hold on to Apple stock in Wall Street if Apple would “negative earnings” for a few years in a row?
    watto_cobra
  • Reply 19 of 19
    lukeilukei Posts: 326member
    lukei said:
    ireland said:
    Now that Spotify has 80M so-called paid subs, they need to pull out the blanket and get rid of the free tier.
    Given ad sponsored Radio is still a multi Billion $ business worldwide why would they want to do this?
    Ad-sponsored may generate Billions in revenue (it doesn't) ads do not generate as much revenue (per listener) as monthly subscriber fees, but the costs of operations remain about the same.  Shutting down ad-sponsored music would increase Spotify's gross margin percent and probably improve cash flow.

    At the least Spotify needs to limit its free streaming to a fixed period (3 months?).
    Radio generates Billions of dollars in revenue (it does)

    how about this. Spotify starts optionally charging $2 month for Discover Weekly to ad based ‘free’ accounts. One of the key features of Spotify but ad supported combined with customer small $ payment. 

    Many many people will not pay $10 a month for music. Most sub 25s are used to it being ‘free’

    Think outside that box. 
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