Streaming Everything And Burning Through the Cash

Michael Hedges February 1, 2016 Follow on Twitter

Big investors and venture capital firms are watched carefully for indicators of financial trend. These money pipeline innovators, some would call them manipulators, apply their skills quite narrowly: make more money with less risk. Tech companies - including media tech - are played like poker chips. Of course, the table always wins.

It was a hop, skip and not much of a jump for streaming music service Spotify to roll out its video component, the Shows section on its Android and iOS app. Through mobile media magic Spotify users can now see TV shows from a variety of sources and shorter videos. None of this is news, exactly, as the company indicated last May it might be heading in the video direction.

Competition being what it is in the mobile streaming everything world, Spotify recently acquired social messaging app start-ups Soundwave and Cord Project. Financial details were not disclosed, other details “vague,” said Variety (January 20). Spotify has 28 million subscribers and 75 million users worldwide, pays 80% of its revenue stream for rights and isn’t profitable. Among music streamers, Apple Music is closing fast with 10 million paying subscribers. Then, too, e-commerce giant Amazon is, reportedly, readying a music streaming product to compliment Amazon Prime.

Money, of course, cures all. Spotify is soon to go (again) to the bond market to raise (another) US$500 million, reported Svenska Dagbladet (January 27) and the Financial Times (January 27). Investors buying the convertable bonds will get a 4% coupon and a 17.5% discount on company shares when that IPO finally arrives. A “planned” IPO is “between one and three years away,” reported Bloomberg (January 27), citing an anonymous source.

Raising money through an initial public offering (IPO) is just so old school. After burning through all the cash from angel and start-up investors the IPO was always considered the next obvious financial step. Remember Facebook’s IPO? Nobody mentions companies that have failed with IPOs because, well, they just disappear, becoming “dead unicorns.”

The clever - and high-stake - money raising tactic now favored by money managers relieves some of that tension. With the eager assistance of investment bankers, companies create and sell a convertable bond offering to pay interest above market rates for a term fixed to an eventual IPO, when the investor can exchange the bond for shares at a discounted (read:attractive) price. Goldman Sachs and Nordea are assisting Spotify in the new bond offering.

Raising money through a debt vehicle is quite popular among the music streaming services. German open platform portal Soundcloud raised US$35 million two weeks ago from an investment by Tennenbaum Capital Partners, which includes convertible bonds worth another US$70 million. Free-for-ads Pandora Media, so far available only in the US, listed a US$300 convertible debt offering in early December. Last year Pandora acquired the assets of bankrupt US music portal Rdio for US$75 million. After cancelling its IPO, French music streamer Deezer raised €100 million the old fashioned way, an injection from shareholders Access Industries (Warner Music) and telecom Orange. Apple, to be clear, is sitting on US$220 billion in cash reserves.

See also in ftm Knowledge

Streaming Everything – new

Great streams of media are flooding digital devices, faster and faster with each new G. Streaming audio and video are either the surfboard riding the digital wave or just another tech Titanic. As investors pile in the cash broadcasters experience another panic attack. This story's just beginning. 49 pages PDF (January 2016)

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Music & Media - Changing Scene

You can hear the pulse of life in music, they say. For the music industry that heartbeat is frantic as business models disappear and reappear. Media has loves music, too, just not in the same ways. This ftm Knowledge file covers the tale of two worlds intertwined. 78 pages PDF (September 2010)

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