The Wall Street Journal is reporting that Spotify is close to finishing a new round of funding that values the money losing streaming service at approximately $8.4 Billion dollars.

Spotify nears deal to raise $400 million in a funding round valuing the company at $8.4 billion 

Now many of you that work for normal companies outside of Silicon Valley’s bubble-and-bullshit based economy are a little confused by the financial reporting on Spotify.   You see in the music tech industry they use a special kind of financial analysis generally referred to as Magic Unicorn Math (MUM).  It works very differently than the kind of financial analysis (non-MUM) used by businesses that are non-exploitative, make profits, and actually add value to our nation’s GDP.   Here let me give you an example:

Since Spotify is a a music tech company the Wall Street Journal correctly  uses MUM financial standards to report on it’s finances:

The money-losing company needs the cash to support its costly business model of paying nearly 70% of its revenue to rights holders as royalties. Spotify said in January that it had about 45 million free users and 15 million who pay $9.99 a month for an ad-free version.

If you break down this statement you can clearly see the differences between a “Magical Unicorn Math” financial analysis and Non-MUM financial analysis.  For instance if you were doing a financial analysis of a grocery store chain, you would use NON-MUM analysis and would never report as remarkable that a grocery store pays out 70% of it’s revenues for groceries. After all groceries are it’s primary product. Of course they pay a substantial portion of their revenues for this product!

However when you use MUM financial analysis,  paying for your primary product is not just unusual, it’s outside the pseudo-scientific quasi-religious postulates of Magic Unicorn Math financial analysis.  In MUM financial analysis your product or  “content” is expected to magically appear on your platform or network. Without ever having to pay for it!

Well I shouldn’t say “magically” because there is a real honest to goodness religious theory behind the magic.  The theory relies on something called “unicorn drag.”   Unicorn drag was first postulated by Dr. Blake Morgan.  As described by Dr Morgan “unicorn drag is a kind of ‘dark matter’ that is shed by unicorns as they invisibly zip about the board rooms of venture capital firms.”

In MUM financial analysis simply by building a platform or network, “unicorn drag” invisibly compels rights holders to freely give up their works at below market rates (or even for free!) so that venture capitalists can profit handsomely through an IPO or  “liquidity event”.   Liquidity events are sometimes more informally referred to as “bilking pension funds and little old ladies out of their life savings.”   Now this is a little confusing because our normal “civilized” ethics would discourage people from profiting in this manner and those that did profit in this manner would normally be shunned or even imprisoned.

However the Old Norse/Silicon Valley/Venture Capital religion on which MUM is based celebrates the “liquidity event.”   According to this particular mythology, the greater the abject immorality of your liquidity event the greater your reward in the afterlife.  Legend has it that those who profit the most shamelessly get to sit and drink from the skulls of their victims at the table of the great crypto-fascist-liBRATarian God Peter Thiel.   Skol!!

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I think I’ve made my point.  Let’s look at that WSJ statement again:

The money-losing company needs the cash to support its costly business model of paying nearly 70% of its revenue to rights holders as royalties. Spotify said in January that it had about 45 million free users and 15 million who pay $9.99 a month for an ad-free version.

For all of you that live in the real world, here’s how that WSJ paragraph should have been written using Non-MUM financial analysis:

The money-losing company needs the cash to buttress meager revenues from the advertising supported free tier of their service.   Spotify said in January that it had about 45 million free users and 15 million who pay $9.99 a month for an ad-free version.

(ED NOTE: We believe that the 15 million paying $9.99 a month is probably not correct, from our reading it looks like WSJ is counting users paying $4.99 a month in that $9.99 a month tier.)

Back in November Billboard announced it would change how it’s top 200 album chart was calculated.  It reasonably added a streaming component to the calculation.  What we did not like at the time it was announced is that it essentially overweighted the streams and disfavored albums not released to the streaming services.   We were also suspicious that this was yet another subtle partisan move by Billboard to bolster incumbent streaming services like Spotify, Pandora and YouTube. Why? Well it seemed suspicious to us that Billboard’s change came  right after Taylor Swift refused to release her album on free streaming services.

Today, in a very odd article, Glenn Peoples and Billboard warned artists that releasing content exclusively with the artist owned Tidal would hurt their showing on the Billboard/Neilson Hot 100 chart.   Peoples helpfully estimates just how much lower certain artists would rank on the Billboard Hot 100.  For instance he specifically calls out Beyonce on this point noting that her single “7/11” would fall 8 places from #44 to #52.   Given that Tidal’s relaunch was the brainchild of her husband Jay Z, this seems a little like throwing down the gauntlet.   Since when is Billboard in the artist warning business?  And why start warning artists in the run up to The Billboard Music Awards?  It all seems odd.

Unless of course Billboard and Nielsen somehow have a dog in the fight.  I mean shouldn’t Billboard charts be service neutral?  Why should the charts favor (as Billboard readily admits) one streaming service over another?  Why would “The Bible of the Music Business” make it harder for upstarts that want to challenge the incumbent and dominant market players in the streaming business? Why would Billboard use it’s bully pulpit to seemingly discourage use of a particular streaming service?

We’ve noticed a very strong tilt in Billboards reporting in the last few years away from artists and towards the streaming services.  It has gotten so bad that when this blog exposed Tim Westergren’s (Pandora) donations to an anti-gay politician that Billboard immediately performed damage control for Westergren.  But this is even more disturbing.  Billboard seems to be putting a thumb on the scale here, favoring Spotify and the incumbents over Tidal.

Now I’m just speculating here,  but is there some other reason that Billboard has come out so strongly in support of certain streaming services?  Is it possible that Billboard has developed financial relationships with these companies? And if they have, wouldn’t this make them complicit in anti-competitive behavior by the incumbent streaming services?  Seems to me that someone should look into this.

But what do I know? I’m just a dumb artist.

 

 

 

 

 

 

This presentation by Jonathan Taplin at the Annenberg Innovation Lab breaks it all down. Required Viewing.

 

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Also in case you missed it, please watch this video by Chris Ruen, author of the book FREELOADING.
Remapping a Broken Internet | Chris Ruen | TEDxAlbany