Why Spotify's IPO could bring more innovation to music technology

After the IPO in April, Jeff Yasuda, CEO of Feed.fm, talked with TechRepublic about why Spotify's success is good for the business of music.

Why Spotify's IPO will have a transformative impact on music tech

TechRepublic's Dan Patterson talked with Jeff Yasuda, founder and CEO of Feed.fm, after Spotify's strong IPO in April.

Watch the video or read the conversation below:

Patterson: What does Spotify's IPO mean, A for that company, and B for the larger tech-driven consumer music space?

Yasuda: Thanks Dan for having me again. It's great to see you as always. You know the music space right now, you mentioned the word transformation, a transformative event, and that is exactly what Spotify's direct listing is. It's transformative from the perspective of number one it's a very unusual way to publicly list shares, right? This is something that only a handful of companies typically do every year, typically in sort of the medical device healthcare field. But I think more importantly I think it's interesting how well it has performed, right? The stock is currently trading and its all time high, there was significant volume its first day of trading, and really it set off a lot of bullish long-term viewpoints of the streaming sector.

I think relative to the music space though, and I think to put things into perspective, let's be straight here. The music sector has traditionally been in turmoil, right? In fact it's so tumultuous that many institutional investors actually run for the hills. You know as a startup company they run for the hills when you mention anything about music. And they should, right? Because the graveyard is long, deep, and wide. But when you have a company like Spotify having a massive, massive direct listing, you know it's currently trading around 30 billion last time I checked, from a market cap perspective this is a great thing. There's liquidity, and this of course is on the backdrop of a lot of recent M&A activity too in the music sector. So again transformative I think is the right word, and it certainly I think bodes well for the future of music.

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Patterson: So I'm glad you mentioned the boneyard of music startups, and technology music startups, and I wonder if you could dive deeper into that. Technology seems to be able to transform, or in the language of technology companies, disrupt almost every industry, and yet the music space is continually hard. Is that because there are entrenched interests, the music labels, the publishing companies, distributors? Or are there other factors at play?

Yasuda: You know I think there's a lot. First of all there are a lot of different players in the space from the copyright holders, the people that manage them, the folks that distribute content, the tech companies. I think your commentary around the graveyard, or the boneyard as you put it, which I'm gonna use by the way going forward, is great. So why? Why is the boneyard so large? Well I think a lot of companies that have tried music and I think failed, kind of lived by this mantra which never worked, which is "Infringe, get big, and ask for forgiveness." And that really has not worked particularly well.

Yet these companies at the same time have completely turned the industry upside down. This is an industry that has been around for call it a hundred years or more. So you know you have things like the Music Modernization Act which recently passed through the House unanimously in which they're trying to make changes to some antiquated laws and regulations. But I think fundamentally your question about challenges really revolve around the complexity of licensing. Companies like Spotify I think have done a fantastic job starting off in Sweden, a small locale where it was basically about 90%, or rampant piracy, and expand it globally. So I think on the backdrop you've got companies that were sort of playing fast and loose with the licensing, and then a realization as we move towards the future, you know get compliant, pay the rights holders, which invariably benefited the fundamental or backbone of all music which are the artists themselves.

Patterson: You mentioned that privacy was running like crazy both in Europe, in the United States, and in Asia, and in may ways streaming and downloads before it was a solution to that problem. But of course the industry is rife with stories about artists not really being paid much if anything at all, and that the labels are taking all the money, or Spotify is taking all the money. Jeff, can you clear up some of the fear, uncertainty, and doubt that has existed here? If I pay for Spotify are artists getting paid? What about Apple Music, SoundCloud, the other premium services?

Yasuda: Yeah I think fundamentally there are always folks that believe they should be paid more no matter what line of business. But keep in mind that Spotify, Apple Music, and even you know Pandora in the non-interactive streaming space traditionally, of course now they have their direct deals, but keep in mind these are all negotiated deals. They, Spotify and Apple Music, negotiated with the rights holders, the labels, the publishers, and negotiated a fair payment structure. Now some artists may have a problem with that, some songwriters may have a problem with it, but again this was something that was agreed to at arms length. So I would call it a fair and negotiated deal.

Having said that, I think the expectation for your typical artist to make money on music traditionally there's been such a small percentage of artists that have made money, and quite frankly most of them make money on the road, selling tickets, selling merch. So I think there has to be a realization on all peoples' parts that there's no free ride. There's no cash cow per se, whatever you do. And I think fundamentally, since you mentioned the artists, and I did run a label at one part, albeit not a particularly successful one, but I understand the challenges. And I think, and I saw that the sales from downloads was very minimal, from actually selling music. But we did see a significant amount of revenues when artists go on the road, and sell merch, and sell tickets, and play in front of their fan bases. So I think a lot of it, the expectations from the perception of the artist may need to be modified slightly to say "Look, there are a lot of different revenue sources that are out there for artists. Spotify and streaming is just one of 'em, but there are others that may actually bode better for your bank account."

Patterson: So what is this IPO with Spotify mean going forward. The stock is up, the product seems as though it is evolving and iterating, and the competitors are as well. So is this a new golden age for music technology, or is this simply a blip in the radar and we'll be back business as usual soon?

Yasuda: So we've seen ... so let's talk sort of macroscopically. The music industry, which traditionally has had a lot of challenge. 2015, to go back a couple years, was the first year in about 20 years that the industry returned a growth. 2016 was the first time it had double digit growth, and just last year streaming revenues grew about 61%. So now streaming revenues, I believe just recently, passed CD sales as the predominant chunk of the pie from a revenue perspective.

Now when you have a company like Spotify having a positive exit event, per se, or at least an even where there's liquidity, that bodes well for the industry particularly because in my view this becomes a very very easy way for Spotify to use its stock as acquisition currency. And when that happens, you have a series, and again this is against the backdrop of all these acquisitions that have taken place, that now all of a sudden Spotify could actually acquire companies, and actually help through its platform create additional innovation. You know young companies, and we all know this, are always ... umbrella and platform, here's an opportunity that Spotify can help create more innovation by bringing these companies under the umbrella.

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