Vox - The Spotify IPOhttps://cdn.vox-cdn.com/community_logos/52517/voxv.png2018-05-31T01:25:03-04:00http://www.vox.com/rss/stream/168286852018-05-31T01:25:03-04:002018-05-31T01:25:03-04:00The three reasons Spotify did a rare direct stock listing, according to CEO Daniel Ek
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<img alt="Spotify CEO Daniel Ek." src="https://cdn.vox-cdn.com/thumbor/qFsAtsZm8s_8_ree-8KQphwIbDM=/41x0:1178x853/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59905415/REC_ASA_CODE18_20180530_210656_3151_preview.0.jpeg" />
<figcaption>Asa Mathat</figcaption>
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<p>It’s all about transparency.</p> <p id="ogTQIi">When Spotify <a href="https://www.recode.net/2018/2/28/17064644/spotify-ipo-stock-music-streaming-wall-street-listing">listed its shares on the New York Stock Exchange this February</a>, it did so with a <a href="https://www.recode.net/2018/4/1/17173976/barry-mccarthy-daniel-ek-spotify-ipo-wall-street-bankers">rare, daring, direct listing</a>, which cut out much of the traditional banking infrastructure that powers most IPOs. And <a href="https://www.recode.net/2018/4/3/17194006/spotify-ipo-direct-listing-first-day">it worked!</a> </p>
<p id="i2p1Zn">Why did the Swedish music streaming service do it that way? As Spotify founder and CEO Daniel Ek explained tonight at <strong>Code Conference</strong> in Rancho Palos Verdes, Calif., there were three main reasons:</p>
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<li id="p4qa52">
<strong>Transparency.</strong> “One thing about the traditional process — which was done in the 1970s — is obviously the world has changed a lot,” Ek said. “It just didn’t sit well with me to put out this document in this day and era when information is [fingersnap] like this and you can’t comment on it, you can’t say anything about it until the moment where you ring the bell and go public. I wanted to see if there was a way to push more transparency so that we could actually be open and could tell the story much differently.”</li>
<li id="c4lqWv">
<strong>Equal access to information for prospective shareholders.</strong> In theory, Ek explained, everyone should have the same information. “What actually happens in practice is you do this quiet road show and give some people a little bit more information, and then you open the doors and hope that those people will then hold your stock. And I didn’t want to do that. I wanted everyone to have exactly the same information.”</li>
<li id="yTUgb1">
<strong>Ek didn’t want to put anyone in a different boat</strong>. “Most often what happens is that the investors get to sell early on; the employees do not. I did not want that at all. I wanted everyone to have the same opportunity to sell — or buy, by the way — Day One.”</li>
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<p id="cg6NhW">Sure, it was risky. “But we had a lot of data,” he said, “and we had a pretty strong indication where it was going.</p>
<p id="6iGSLW">“Overall, I would say, even if it would have been more volatile in the beginning, I don’t think it would have changed our decision. We’re trying to build something where we care about where the value will go long term, not what the stock will trade Day One.”</p>
<p id="MlIe2k">Watch Ek’s full interview with Kara Swisher and Peter Kafka below.</p>
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<aside id="olVGyv"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"recode_daily"}'></div></aside><p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/5/31/17390118/daniel-ek-spotify-ipo-direct-listing-code-conference-interviewDan Frommer2018-04-04T11:09:50-04:002018-04-04T11:09:50-04:00This is who benefits most from the Spotify IPO
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<img alt="Spotify CEO Daniel Ek in a tuxedo" src="https://cdn.vox-cdn.com/thumbor/2RYt6DyVvYKZmtP8qxkcaLF0aNc=/0x0:2880x2160/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59266141/885052334.jpg.0.jpg" />
<figcaption>Spotify CEO Daniel Ek | Jesse Grant / Getty</figcaption>
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<p>You win when you take a company public.</p> <p id="RnDJt0">Spotify is worth $25 billion as of Wednesday, and that means that its founders now have real money — not just some on-paper-only wealth.</p>
<p id="g022MI">CEO Daniel Ek, <a href="https://www.recode.net/2018/2/28/17064048/spotify-ipo-sony-music-billion-dollar-equity-streaming">who owns just over 9 percent</a> of the music streaming company, is now sitting on about $2.3 billion of Spotify stock at its current price. His lower-profile co-founder, Martin Lorentzon, has about $3.1 billion worth of shares in the company.</p>
<p id="otxR5r">What’s unusual about Spotify’s direct listing on the stock market this week is that company insiders are not required to hold onto their shares — in what’s called the lock-up — for an extended period of time. So someone like Ek or Lorentzon could sell their shares today and go buy a mansion or two tomorrow.</p>
<p id="LxPe8n">Other big holders of Spotify stock include the investing firms Tiger Global, TCV and the Chinese conglomerate Tencent (which is the only shareholder subject to a unique lock-up arrangement.) Each of those control between 5 percent and 10 percent of the stock.</p>
<p id="yZKv9D">It’s especially hard to tell, though, how much money some investors made as Spotify rose, because Spotify has had such an extensive history of private stock sales between shareholders. We don’t know, for instance, if a certain firm sold or bought shares quietly several years ago. In companies that more strictly curtail those deals, it’s easier to track the winners and losers in an IPO.</p>
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<p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/4/4/17197630/spotify-ipo-winners-stock-billion-daniel-ekTheodore Schleifer2018-04-03T18:24:47-04:002018-04-03T18:24:47-04:00At $27 billion, Spotify is the seventh-most-valuable internet company to go public in the U.S.
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<img alt="The New York Stock Exchange building with a Spotify banner out front" src="https://cdn.vox-cdn.com/thumbor/fUY9FCKXYNZE7tb6sD8StvvURuQ=/167x0:2834x2000/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59257561/941399296.jpg.0.jpg" />
<figcaption>Photo by Spencer Platt/Getty Images</figcaption>
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<p>It’s up there with Google, if you don’t adjust for inflation.</p> <p id="iCfhnz">Spotify’s public offering is not only notable because of its uncommon choice to <a href="https://www.recode.net/2018/4/2/17189624/spotify-daniel-ek-ipo-silicon-valley-wall-street-relationship">list its shares directly on the stock market</a>. The stock, <a href="https://www.recode.net/2018/4/3/17194006/spotify-ipo-direct-listing-first-day">which began trading today</a>, also ranks among the most valuable internet companies to list in the U.S.</p>
<p id="218vKV">Its closing market value today was about $27 billion, according to Dealogic, putting it ahead of Twitter and Groupon, but behind Alibaba, Facebook, Snap and Google following their first trading days. That’s despite a stock price decline of about 11 percent today. </p>
<p id="6jqPTx">Spotify is also the most valuable tech IPO since Snap went public last year, closing its first day at nearly $29 billion. Spotify had the 25th-biggest first-day closing market cap out of companies in all sectors, according to Dealogic’s data, which goes back to 1995 and is not adjusted for inflation.</p>
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<p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/4/3/17193594/spotify-ipo-price-stock-wall-street-marketRani Molla2018-04-03T16:15:02-04:002018-04-03T16:15:02-04:00Spotify’s first day of trading ended up being surprisingly normal — and that’s a win for the direct listing
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<img alt="Music Streaming Service Spotify Goes Public On The New York Stock Exchange" src="https://cdn.vox-cdn.com/thumbor/akU5xPvWs-1sa3wao7rCxXxQlPQ=/146x0:2813x2000/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59255945/941399442.jpg.0.jpg" />
<figcaption>Spencer Platt / Getty Images</figcaption>
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<p>Where’s the chaos?</p> <p id="o7QEO0">If you were expecting Spotify stock to fluctuate wildly on its first day of trading as it tried to reinvent how companies go public, you were wrong.</p>
<p id="MPv9y8">Spotify had a fairly unremarkable public debut as the market closed Tuesday, which is a win for the direct listing, given the doomsday scenarios imagined by skeptics of the music company’s plans. Advisers to Spotify were hoping to have enough shareholders willing to buy and sell to make sure that the actual share price didn’t spike and crash rapidly — a real worry, considering Spotify’s novel plan.</p>
<p id="rOftiy">About 30 million shares of Spotify’s 178 million outstanding shares traded hands on Tuesday.</p>
<p id="XWeK1c">The stock price did drop — after opening at about $167 per share, Spotify was trading at about $149 by Tuesday afternoon. Spotify did not have the traditional “pop,” or moderate uptick in stock price, that bankers try to craft to create the impression of positive momentum — though given the strangeness of Spotify’s plan, it’s not exactly an apples-to-apples comparison.</p>
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<p id="5lGV0B">That 10 percent drop shaved about $3 billion off of the company’s value: At the end of the day, Spotify was considered by Wall Street to be a $27 billion company.</p>
<p id="U4dLDg">Rather than selling new shares to institutional investors just before the stock is buyable by the public, Spotify instead chose to list its existing shares directly on the New York Stock Exchange. That decision could recast the relationship between Silicon Valley and Wall Street, especially if Spotify proves to fare just as well on the market without the traditional help of bankers.</p>
<p id="QNTDDv">Spotify won’t be judged purely by its first-day results. But it appears that a $27 billion company has gone public — the seventh-biggest U.S. IPO ever — without some of the chaos that naysayers predicted.</p>
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<p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/4/3/17194006/spotify-ipo-direct-listing-first-dayTheodore SchleiferRani Molla2018-04-03T07:18:16-04:002018-04-03T07:18:16-04:00Spotify relies on the big labels for most of its music. It thinks that will change.
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<img alt="Daniel Ek, founder and CEO of Spotify, speaks onstage during Spotify Investor Day in front of a screen that reads, “Our mission: Unlock the potential of human capability by giving a million creative artists the opportunity to live off their art and billio" src="https://cdn.vox-cdn.com/thumbor/-qhCiV5IUV4OZQkeuCyomFtMcSY=/311x0:2974x1997/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59248949/Daniel_Ek_Spotify.0.jpg" />
<figcaption>Spotify CEO Daniel Ek | Ilya S. Savenok / Getty Images for Spotify</figcaption>
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<p>The streaming music company wants to get more music — and more profitable music — from the little guys.</p> <p id="gDyEDE">Spotify is 12 years old and has never been profitable. </p>
<p id="0hehhB">Last year, it posted an operating loss of $461 million. </p>
<p id="8tTHG7">Today, <a href="https://www.recode.net/2018/2/28/17064644/spotify-ipo-stock-music-streaming-wall-street-listing">as it goes public</a>, it wants investors to value it at something above $20 billion.</p>
<p id="XwQQFH">In order to believe that’s a good idea, you have to believe that Spotify has figured out a way to improve its margins, <a href="https://www.recode.net/2018/2/28/17063892/spotify-ipo-margins-music-labels-streaming">which it says it will do</a>.</p>
<p id="jkboLz">And in order to believe <em>that</em>, you have to believe that Spotify has figured out how to change the way it works with its most crucial partners: The big music labels.</p>
<p id="zOQZu0">Spotify hasn’t said it will do that, for good reason. Spotify and the big music labels are in a co-dependent relationship that is both fraught and fruitful.</p>
<p id="E2ca94">The big labels provide Spotify with the music that makes up 87 percent of the company’s streams. Spotify provides the labels with billions in revenue, which is starting to replace the vanishing money the labels used to make from CD sales and digital downloads.*</p>
<p id="pVGBKS">But Spotify’s plans for the future <em>do</em> involve changing that relationship in the long run.</p>
<p id="pxiJEA">The idea, according to people familiar with the company’s plans, isn’t to cut out the big music labels or compete directly with them by signing acts to recording deals. </p>
<p id="mGUtGN">Spotify does imagine, however, that over time, a growing tier of music acts, or small independent labels, won’t use the big labels for distribution. Instead they’ll work directly with the streaming service.</p>
<p id="ELDPae">If that happens, the thinking goes, Spotify will be able to command better terms from the small acts and labels than it gets from Universal Music and the other giant labels. But the small acts and labels will end up keeping more money than they would have in the earlier arrangements because they won’t have to pay the big guys to bring their stuff to Spotify and other outlets.</p>
<p id="j5uof7">Spotify’s gross margins have already been ticking up — to 21 percent at the end of last year — in part because of new deals it has struck with the big labels. </p>
<p id="WSIthM">But Spotify CFO Barry McCarthy has been clear about the fact that Spotify can’t expect to keep striking new deals with the big guys to get Spotify to its goal of 35 percent margins. He and the rest of the company have been less explicit about what will get them to that number.</p>
<p id="bxBXqT"><a href="https://twitter.com/pkafka/status/969194969348104192">So when Spotify talks about becoming a “platform”</a> — a term it used dozens of times in its public offering documents and then again during its investor pitch day last month — it is talking about a bunch of different things. But the main one is that Spotify wants to connect music acts directly with music listeners and take a cut of the transaction. </p>
<p id="1HqblL">“It’s a kind of code,” says a person who has worked with the company since its early days. “You have to imagine what they’re talking about.”</p>
<p id="Cvwu3S">This model could theoretically apply to giant stars as well as small acts. Note that Metallica, which used to complain about music streaming, changed its tune once it got control of its own music and <a href="http://allthingsd.com/20121207/kill-em-all-then-do-business-with-them/">signed a direct deal with Spotify in 2012</a>.</p>
<p id="0HUKX3">But the company doesn’t plan on trying to convince giant stars like Taylor Swift or Drake that they should abandon their labels and work directly with Spotify (though it’s worth keeping an eye on Swift, who will have many intriguing options in front of her in the near future). </p>
<p id="0CbX7z">Instead, the company is thinking about a “mid-tail” of acts — big enough to have fans but small enough that big labels won’t spend a lot of time pursuing them. If you’re making a list of worldwide musicians, think about acts number 1,000 to 10,000, suggests a source.</p>
<p id="pddMxs">If you float this idea with the big music labels, you’ll get a couple responses, which aren’t mutually exclusive:</p>
<ul>
<li id="kBAmaz">Good luck working without us — musicians always talk about leaving the labels. And sometimes they do. But they always end up working with us again, or wishing that they did, because we do all kinds of things for them that they need.</li>
<li id="Bnq7mu">If Spotify goes after our big acts, we’ll go nuclear. Good luck running a streaming service without our songs — not just the new ones, but our old catalog, which accounts for the majority of our streams.</li>
</ul>
<p id="JBPTHq">Today’s IPO doesn’t formally change anything between Spotify, the labels and the music acts Spotify wants to work with directly. If Spotify’s plans work out, they will do so over time.</p>
<p id="TAbTYU">But now that Spotify is a public company, investors will be able to watch its progress closely. The music business will be watching, too.</p>
<p id="kHCVRH">* The labels also own meaningful equity stakes in Spotify. <a href="https://www.recode.net/2018/2/28/17064048/spotify-ipo-sony-music-billion-dollar-equity-streaming">Sony Music, for instance, may have more than a billion dollars worth of Spotify shares</a> at the end of today’s direct listing.</p>
<aside id="igsM9i"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"recode_daily"}'></div></aside><p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/4/3/17191390/spotify-plan-big-music-labels-platform-marketplace-ipoPeter Kafka2018-04-02T19:37:36-04:002018-04-02T19:37:36-04:00Spotify’s direct listing is an inflection point in the Wall Street-Silicon Valley relationship
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<img alt="Spotify CEO Daniel Ek" src="https://cdn.vox-cdn.com/thumbor/XGa10bsiJaKSuQStki85hw9Ih1k=/96x0:2759x1997/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59245357/932454444.jpg.0.jpg" />
<figcaption>Spotify CEO Daniel Ek | Ilya S. Savenok / Getty Images for Spotify</figcaption>
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<p>You should care what happens on Tuesday — even if you don’t care about Spotify.</p> <p id="5qhhNj">Tuesday will be an abnormal day in the history of the IPO.</p>
<p id="vuRZaj">“Normally, companies ring bells. Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. Normally, companies don’t pursue a direct listing,” Spotify’s CEO, Daniel Ek, <a href="https://newsroom.spotify.com/2018-04-02/tomorrow/">said on Monday in a blog post titled, “Tomorrow.”</a></p>
<p id="RZ71CM">“While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company.”</p>
<p id="IEEdks">On Tuesday, Ek’s Spotify will pioneer a new way for companies to go public, volunteering itself as a guinea pig for the venture-backed economy by eschewing the traditional help of investment bankers. Rather than selling shares to institutional investors in advance of the first day of trading — as is normally done in an IPO — Spotify isn’t selling any new shares. It is <a href="https://www.recode.net/2018/4/1/17173976/barry-mccarthy-daniel-ek-spotify-ipo-wall-street-bankers">instead allowing its existing shareholders to directly offer their holdings</a> to the market.</p>
<p id="9XkNMr">Here’s why that matters — even if you don’t care about Spotify: If the direct listing is successful, then the push-and-pull power struggle between Silicon Valley and Wall Street would shift more toward the former. More and more highly valued startups could think that they, too, do not need Wall Street’s usual fare in order to become a public company, and investment bankers could have a tougher time pitching their services to CEOs.</p>
<p id="yqu06G">Starry-eyed entrepreneurs and deal-chasing bankers are cut from culturally different cloths, but they’ve needed each other for decades: Founders need the wisdom of bankers to turn their private companies into public behemoths; bankers need the consistent revenue stream. It’s a professional alliance that has worked, and that’s probably why there hasn’t been that much innovation in the IPO process despite the tech sector’s love of disrupting the old business model.</p>
<p id="VngAVB">So, what if founders are no longer dependent on bankers’ full suite of services to go public? That’s what Spotify is testing.</p>
<p id="Fg7YpL">It’s not as though bankers are totally cut out of the process. They’ll still make tens of millions of dollars in advisory fees for what is, in some ways, a more challenging task.</p>
<p id="e5XsRR">Morgan Stanley, for instance, reached out to almost all Spotify shareholders over the last month or so to gauge their interest in selling stock, according to people familiar with the process, and more recently began the same conversations with institutions interested in buying Spotify shares. That work theoretically will help Spotify know what will happen to the company’s stock at various price levels.</p>
<p id="rM082K">The other objective of bankers advising the deal, the people say, is to make sure there is a high-enough volume of shares traded to insulate the company against extreme volatility. Because Spotify isn’t being expertly “priced” the day before trading, its shares <a href="https://www.recode.net/2018/2/28/17064288/spotify-ipo-risk-filing-music-streaming-service-initial-public-offering-stock">could move around wildly</a> in the opening hours of trading — which is expected to begin midday on Tuesday.</p>
<p id="yb1qZf">One reason that banks like Morgan Stanley have their work cut out for them: Spotify investors and employees have had tons of opportunities over the last decade to sell their stock. The company has been tolerant of private stock sales to an unusual degree, meaning that Tuesday is not the release valve for shareholders who long felt shackled — that’s expected to temper the sell-off. The direct listing is another opportunity to do what they’ve always been free to do.</p>
<p id="JAo7m8">In fact, about $500 million in Spotify shares have been traded over the last few weeks in the lead-up to the direct listing, the people familiar with the process say. Those trades happened at share prices that valued the company between about $22 billion and $25 billion.</p>
<p id="DKdnJ5">That openness to private trades is one of several unique circumstances that allows Spotify to do what other private companies haven’t been able to do. Spotify says it doesn’t need to create and sell new shares to finance the company, which most companies cannot similarly say. It has a huge, <a href="https://www.recode.net/2018/2/28/17065772/spotify-ipo-71-million-subscribers-direct-to-consumer-advantage">popular consumer brand</a> that will appeal to mom-and-pop retail buyers. And the aforementioned stock trades make it easier to estimate how the company will price.</p>
<p id="kCSAd1">So that’s why some naysayers posit that even if Spotify’s direct listing succeeds, it will not usher in a sea change in how the standard IPO unfolds. It’s a perfect storm of circumstances that makes it possible — for one particular company at one particular time.</p>
<p id="3O88ZT">But startups will at least now consider other options — in fact, that’s true even if Spotify’s direct listing isn’t judged by history to be successful. Companies now know that there is room for restructuring in the IPO, and that’s already a setback for the incumbent, the banking industry.</p>
<aside id="g2eSet"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"recode_daily"}'></div></aside><p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/4/2/17189624/spotify-daniel-ek-ipo-silicon-valley-wall-street-relationshipTheodore Schleifer2018-04-01T12:43:39-04:002018-04-01T12:43:39-04:00Meet Barry McCarthy, the man behind Spotify’s daring public offering
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<img alt="Spotify CFO Barry McCarthy" src="https://cdn.vox-cdn.com/thumbor/0FnxQS1ULa6FHobrvTEvg4VEA4s=/0x218:2137x1821/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/59230985/932524604.jpg.0.jpg" />
<figcaption>Ilya S. Savenok/Getty Images for Spotify</figcaption>
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<p>Spotify’s CFO pushed for this week’s direct listing, which could change life for Wall Street and for big tech startups. </p> <p id="4qARCP">When Spotify goes public Tuesday, the spotlight will shine on 35-year-old CEO Daniel Ek, who has built a $20 billion company and <a href="https://www.recode.net/2018/3/22/17152592/music-sales-streaming-2017-riaa">helped revive the music industry along the way</a>.</p>
<p id="pfrjQV">But if Spotify’s unusual “direct listing” offering — done without the traditional assistance from investment banks — is successful, credit will go to a Spotify executive 30 years Ek’s senior, who doesn’t want any attention: Barry McCarthy, the company’s chief financial officer, who is acknowledged as the architect of the unorthodox and, to some, controversial public offering.</p>
<p id="ktcD6i">If the direct listing works, it could pave the way for other tech startups to follow suit. That could potentially cut out Wall Street banks and their clients from a lucrative revenue stream, and would roil the financial services industry.</p>
<p id="t8bHqy">But people who know McCarthy say he does not care about the broader implications of his plan — he isn’t motivated by some ideological crusade to stick it to Wall Street, nor by some high-minded attempt to chart a new future for the technology sector.</p>
<p id="i1SJZp">“I don’t think it’s a middle finger to Wall Street because he comes from Wall Street,” said Reed Hastings, the CEO of Netflix, where McCarthy was its CFO for eight years. “He’s as Wall Street as it gets.”</p>
<p id="uJanZw">In a traditional offering, a startup hires bankers to find investors to buy its stock, a pre-qualified group willing to run the risk of taking on shares in a company that hasn’t traded openly. The bankers sort out the right price for these shares by wrangling and haggling with these investors, who then sell those shares the following day on an open exchange like the Nasdaq or the NYSE.</p>
<p id="I7dsDo">In the direct listing that Spotify is attempting, there will be no bankers to find qualified pre-buyers and set a price for the initial stock sale. The shares of SPOT will just open on the NYSE exchange on Tuesday.</p>
<p id="fZ01Vv">Some spurned bankers are quietly rooting for Spotify and McCarthy to fail. Their argument: The strategy has real risk, because they haven’t been able to help the company guarantee an appetite for its shares, and they won’t step in to stabilize the stock if something goes wrong. Its stock value could swing frantically. </p>
<p id="cREx42">So if Spotify stock trades wildly in its opening days or tanks in its opening months, McCarthy could end up as the poster child for Silicon Valley arrogance. Some bankers will see it as comeuppance for an executive who tried to fix a system that in their eyes wasn’t broken.</p>
<p id="NlUuzx">McCarthy first joined Spotify in 2014 as a member of its board and moved to the CFO role a year later. As the company started edging toward a long-awaited IPO, he started selling Ek on the direct listing. </p>
<p id="V9SdbM">McCarthy presented the entrepreneur and his board with a clinical, “brutally logical” diagnosis of why Spotify shouldn’t sell shares to institutional investors right before trading begins.</p>
<p id="tXzaCS">Spotify, he argued, could avoid the regulations, fees and distractions since it didn’t need to raise money, already had a well-known consumer brand and had a good idea of how much it was worth from all the private trades done for years by existing investors. </p>
<p id="vDi52P">“It’s not like Barry’s wanted to do this forever and this was the opportunity,” said one person close to the company. “Barry does not care about how history remembers him or doesn’t remember him.”</p>
<p id="whr45f">McCarthy is an unlikely iconoclast. He started his career at Credit Suisse First Boston in the 1980s, trading mortgage-backed securities when that industry first took off. He headed to his first CFO role at a different music company, Music Choice. And then at Netflix, he executed a traditional IPO under Hastings.</p>
<p id="LOtzCB">McCarthy helped Hastings create a fast-growing DVD-by-mail business, with a high-flying stock price. (An earlier version of this story incorrectly reported that McCarthy worked with Hastings to recover from mistakes it made in 2011. McCarthy had left the company in 2010.) </p>
<p id="yj70j7">But as Hastings recalled, McCarthy wanted to be a CEO or a COO. It took him three years after leaving Netflix to find it, but he did — at Clinkle, a much-hyped payments company that raised money from A-list backers and then flamed out in spectacular fashion.</p>
<p id="3YqjQy"><a href="https://www.recode.net/2014/3/13/11624542/clinkles-still-a-hot-mess-as-its-big-shot-coo-departs">McCarthy lasted six months</a> as COO, but avoided career disaster.</p>
<p id="Mas4DA">“It’s the classic tension: You can get the bigger job at the smaller company, like a Clinkle kind of thing,” Hastings said, adding with some understatement: “I’m sure he’s found Spotify much more satisfying than Clinkle.”</p>
<p id="qFkiSH">But his time at Netflix made him well-suited to serve as Ek’s<strong> </strong>de facto Sheryl Sandberg or Eric Schmidt — a voice of experience that carries a lot of weight for the young chief executive. Though in this case, it is the older wise man pushing the more radical idea. </p>
<p id="3JHR67">His Netflix pedigree, coupled with Spotify’s Netflix-like grow-fast-now, worry-about-profits-later strategy, conveys an implicit promise to would-be Spotify investors: This is another consumer growth rocket ship.</p>
<p id="3La4EQ">McCarthy made that connection explicit at Spotify’s Investor Day last month.</p>
<p id="yYD5dE">“This reminds me of my first 10 years of Netflix,” he told investors, in what he said was his first public speaking event in eight years.</p>
<p id="ufIjaE">McCarthy isn’t cutting out banks entirely from Spotify’s public offering. The company will spend up to $50 million in advisory and other fees — an out-of-pocket expense it will pay for immediately. (If Spotify had done a traditional IPO, its bankers would have made most of their money by reselling an allotment of Spotify equity.)</p>
<p id="oWIegr">That’s real money, even for banks the size of Goldman Sachs. David Solomon, Goldman’s CEO heir apparent, made a personal plea in Goldman’s pitch to Spotify, playing up his now <a href="https://www.nytimes.com/2017/07/13/business/dealbook/goldman-sachs-david-solomon-dj-d-sol.html">well-publicized side job as DJ D-Sol</a>, according to two people with knowledge of the pitch. It worked.</p>
<p id="2gVIJ2">Spotify has considered other alternative paths to going public. Ek and venture capitalist Chamath Palihapitiya had some very early conversations about using Social Capital Hedosophia, <a href="https://www.recode.net/2017/8/23/16194374/social-capital-investment-firm-banks-ipo-public">Palihapitiya’s planned special purpose acquisition vehicle</a>, to acquire Spotify and “back in” to public status that way,<strong> </strong>according to multiple people with knowledge of the conversations. Social Capital declined to comment.</p>
<p id="7OiP34">And even once a direct listing was chosen as the play, the company confronted hiccups.</p>
<p id="0Bm1oz">Spotify had to spend months walking regulators at the Securities and Exchange Commission through the details of the plan. And late last year, <a href="https://www.recode.net/2018/1/3/16847786/spotify-tpg-tencent-debt-dragoneer-ipo-music-streaming">Spotify had to hammer out a way to mollify a pair of investors who had issued debt to Spotify</a> that would only convert to equity when the company officially IPO’d. McCarthy and Ek found a way to soothe what at one point appeared to be a sticking point in the negotiations.</p>
<p id="5nyiyl">That has all led to Tuesday, when Spotify shares will trade freely for the first time. It will be a big deal for Spotify, and it may be a big deal for future startups and the bankers who want to work with them. </p>
<p id="54tmjn">Good luck getting McCarthy to say it’s a big deal to him. “I don’t think he’s trying to be the hero,” said one person close to the process. “He’s not an evangelist. He’s not really trying to change the world.” </p>
<aside id="87FlLC"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"recode_daily"}'></div></aside><p id="d3Og0L"></p>
<p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/4/1/17173976/barry-mccarthy-daniel-ek-spotify-ipo-wall-street-bankersTheodore Schleifer2018-02-28T23:26:41-05:002018-02-28T23:26:41-05:00Everyone wants to build a giant consumer subscription business. Spotify already has one.
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<img alt="Spotify CEO Daniel Ek onstage in front of a Spotify logo" src="https://cdn.vox-cdn.com/thumbor/EDnQTXOofRJMbG5BWT8nzbVCLxk=/119x0:2780x1996/1310x983/cdn.vox-cdn.com/uploads/chorus_image/image/58860349/474103336.jpg.0.jpg" />
<figcaption>Michael Loccisano/Getty Images for Spotify</figcaption>
</figure>
<p>71 million subscribers is a big deal, and it gives CEO Daniel Ek lots of options.</p> <p id="WAoLuL">It is easy to be skeptical about <a href="https://www.recode.net/2018/2/28/17064644/spotify-ipo-music-streaming-initial-public-offering-listing">Spotify’s about-to-be-public business</a>, which it thinks is worth north of $20 billion. So let’s do that quickly.</p>
<p id="DeJN2m">Spotify:</p>
<ul>
<li id="8GS33l">
<a href="https://www.recode.net/2018/2/28/17063892/spotify-ipo-margins-music-labels-streaming">Loses a lot of money</a>.</li>
<li id="OiMgXu">Has always lost a lot of money.</li>
<li id="LoDvWJ">Is a digital music business, and those businesses don’t make money.</li>
</ul>
<p id="p08MU9">And here’s the quick version of Spotify’s upside, expressed by people in and around the company for years:</p>
<ul>
<li id="2SxfCK">We’re losing money because we’re growing. But if we wanted to stop growing we’d make money. <a href="http://allthingsd.com/20131211/spotifys-daniel-ek-on-competition-controversy-and-crossing-over-into-the-mainstream/">No problem</a>.</li>
<li id="POaFey">Maybe we can sell stuff beyond expensive, low-margin music. That’s why we’ve flirted with video (at one point, according to people familiar with the company, Spotify considered launching its own version of a Hulu-like internet TV service; instead it settled for a much less ambitious offering of short clips, which didn’t go anywhere), and we’re playing around with podcasts. That’s why our CEO wrote that “<a href="https://www.sec.gov/Archives/edgar/data/1639920/000119312518063434/d494294df1.htm#rom494294_14">music has just been the beginning,</a>” in his IPO vision statement.</li>
</ul>
<p id="BtBW8O">So there’s both sides. </p>
<p id="mYQgug">And here’s the reason I am most bullish about the business Spotify has built and is building:</p>
<ul><li id="gaMj2J">71 million paid subscribers.</li></ul>
<p id="nQsIg1">Those subscribers pay Spotify a bunch of money. But that’s not the most important thing about them. It’s that Spotify has a direct billing relationship with most of them.</p>
<p id="opUTpN">And in 2018, running your own, large direct-to-consumer subscription business — which works on any platform or device, <a href="https://www.recode.net/2016/6/30/12067578/spotify-apple-app-store-rejection">even those that aren’t psyched about it being there</a> —looks like a very attractive, valuable thing. </p>
<p id="xhOBwJ">Think Netflix. Think Amazon Prime. Think whatever service Apple keeps hinting it wants to build, one day.</p>
<p id="RA6AOt">You can also think of Disney and its desire to build a giant direct-to-consumer business of its own, which is <a href="https://www.recode.net/2017/8/9/16117570/disney-streaming-espn-netflix-business-model-change-bob-iger">prompting a big business pivot</a>, as well as a <a href="https://www.recode.net/2018/2/27/17057618/media-merger-wars-comcast-fox-disney-sky-cmcsa-foxa-dis-rupert-murdoch">$52 billion deal to (maybe) buy most of Fox</a>. Or think of everyone else in the media business, who are trying to figure out how they can quickly launch subscription businesses themselves.</p>
<p id="kGL6cP">So once you’ve built a direct-to-consumer business with 71 million subscribers, what do you do next?</p>
<p id="wfmk4V">I’m not sure, but there are lots of intriguing options, none of which are mutually exclusive: You can keep adding subs, which Spotify certainly intends to do. You can raise prices, though it doesn’t seem likely to do that soon, as it looks like it has been <a href="https://twitter.com/Lucas_Shaw/status/968934301676040192">discounting</a> to boost its growth. You can sell other services you create yourself, if you want take the risk of moving way beyond your comfort zone. And you can rent out your billing platform to other, complimentary services, as Amazon has been doing successfully to subscription video services like Showtime. </p>
<p id="PapiaI">You’re smart, so you can think of more possibilities. And if I’m thinking about betting on Spotify, the more of those you can think of, the more interested I’m going to get.</p>
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<aside id="aXyDG5"><div data-anthem-component="newsletter" data-anthem-component-data='{"slug":"recode_daily"}'></div></aside><p><small><em>This article originally appeared on Recode.net.</em></small></p>
https://www.vox.com/2018/2/28/17065772/spotify-ipo-71-million-subscribers-direct-to-consumer-advantagePeter Kafka