Hot European music startup Spotify is back in the news today. On August 4 we broke the news that the big music labels have secretly been shareholders in the company since 2008, and that they paid roughly the same price for their preferred stock as venture capital investors Northzone Ventures and Creandum paid last year.
Now, though, Swedish news site ComputerSweden is reporting that those music labels actually got their stock for free. “Sony BMG, Universal Music, Warner Music, EMI and Merlin…bought at the time in to Spotify – for a pittance. They received 18 percent of the shares in Spotify barely 100 000 kronor,” (about €10,000) says the report. Metro Teknik has also picked up on the story.
We don’t believe that report is correct based on our sources that say that the labels paid roughly the same price as the venture investors for that stock.
And we have now obtained that unverified capitalization table information, reportedly based on a filing in Luxembourg where the company is headquartered, showing the various ownership positions of the major Spotify shareholders, including the prices paid for the stock.
We have reason to believe this is largely or completely accurate based on information it contains that we independently obtained from a separate source and have not previously published. With one exception – either the report inaccurately shows investments by labels as 1/1000 of their real amount (meaning three 0’s need to be added), or the report excludes most of these investment amounts.
Here’s the cap table:
Shareholders in Spotify on 10/7 2009
Bolag Andel
Rosello (Lorentzon) 28,6%
Instructus (Ek) 23,3%
Northzone Ventures 11,9%
Enzymix Systems (F. Hagnö) 5,8%
Sony BMG 5,8%
Universal Music 4,8%
Warner Music 3,8%
Wellington IV Tech 3,8%
Creandum II LP 3,5%
Swiftic (Strigéus) 2,6%
Creandum II KB 2,4%
EMI 1,9%
Merlin 1,0%
SBH Capital (B. Hagnö) 0,8%df
Riskkapitalbolagens investeringar
Northzone 8 miljoner euro
Creandum 4 miljoner euro
Wellington 6,5 miljoner euro
Li Ka-shing 20 miljoner euro** enligt Financial Times
How much the labels paid for their shares.
Sony BMG – 2 935 euro för 6 procent av aktierna.
Universal Music – 2 446 euro för 5 procent av aktierna.
Warner Music – 1 957 euro för 4 procent av aktierna.
EMI – 980 euro för 2 procent av aktierna.
Merlin* – 490 euro 1 procent av aktierna.
This cap table shows founders Daniel Ek and Martin Lorentzon with 23.3% and 28.6% of the stock, respectively, for a total of 51.9% of the fully diluted stock of the company. The four big labels plus indie aggregator Merlin own a total of 17.3%, and paid an aggregate of €8.8 million for that stock.
Or, they paid €8,808 for that stock, which is what ComputerSweden is reporting.
Based on all previous information that we’ve received about the company from sources, including additional discussions with people close to the company this evening, the aggregate investment by labels was €8.8 million.
If the labels didn’t pay for the stock, all those previously sourced numbers are incorrect, which we think is highly unlikely.
The new round of financing, from Wellington Partners, Li Ka-Shing and additional strategic partners (Based on the cap table above, Spotify has already closed on the Wellington portion of that deal) will be $50 million or so, at valuation of $250 million (yes, I know I’m mixing currencies, but the numbers are all roughly working out). Most of that, or about €26.5 million, may be accounted for.
The key takeaway from this is that the founders have done an excellent job of raising a big bucket of money while retaining control of the company, and they are one of the very few music startups to actually get real cash from the labels.
My esteemed colleagues see some big holes in the Spotify story, but there is clearly a lot going right with this company, too. The real hurdle is making the model work, meaning they have to generate real advertising and premium revenues to offset big royalty streaming payments to the labels.
Who did u have to kill to get that data ? i hope it was kill and not ….
Michael,
You must be on a completely different planet where your BS detector is stuffed.
There is absolutely NO way the founders have retained 50% of the stock of spotify if they did indeed raise a 50 million 250 round on an onine music startup. Name me one online music startup (venture backed, and not iTunes) that can be considered a true VC success. In this environment, no VC is going to let founders keep 50%+ of a company like this at such a high valuation. This would mean that these guys raised VC funds at a ridicuously more favorable rate than Google.
HL
Theres something not quite right with spotify as a whole. I dont understand what makes spotify so different compared to other music start ups that they will allow them to monetize more effectively than any other. Ok the design is slick but no design is or will be slick enough to make me pay $10 a month.
I believe the labels have more control than what we are aware of..totalmusic failed…I believe that the labels want spotify to be their total music and will continue to subsidise it as long as it gains sizable market share. While this is happening they will continue suing other innovative music start ups to limit competition.
As long as the labels are subsidising royalty rates they have control…
Have you read this? http://lifehack...ne=true&s=i
There simply isn´t that much competition out there today,and qualtiy-wise, there never has been. The record companies has only sued when the startup hasn´t made any deals
with the labels from the start, so its kind of understandable. It took Spotify literally two years to get the labels to ink the deals. If other companies spent that amount of time, they would have a better chance. But . When honest startups are failing its mainly because of streaming rates. That probably wont be a problem for Spotify since the quality of the service is higher than everyone else.
Spotify delivers simplicity in pricing and quality of execution.
You pay your money at the door and listen to whatever you like. The native player is far superior to all the web alternatives out there. As a user, it simply works.
They are also great guys to work with.
We launched a Spotify chart recently (http://spotify.wearehunted.com) and they were a delight to work with. Really open, helpful and supportive of other startups.
We hope they finally clean up this space!
Jack I feel you are overly optimistic. Th eonly way spotify can survive economically is if the rates are subsidised significantly below the penny rates.
The key is will your average joe pay for the service as they are the ones that truly matter, as even with 10% of the audience paying (music savants) it is still not enough to cover the rest.
Its not that i dont think the product is lacking, I feel that it will take a structural change within the internet as a whole to make the proposition viable.
It is clear they are banking on audio ads but will that market develop soon enough to make it a significant revenue stream?
SJ:
I realize that it´s probably tougher to survive as a streaming service in the US than in Europe .Maybe the only way to making the streaming rates more reasonable is to “educate” the labels. Lets say Spotify has enough funding to allow unlimited streaming within the US for seven or eight months. Taking into account the rapid growth of Spotify (2.5 million users in the UK within four months) that should be enough time to make it a huge success with millions of happy US users (lifehacker-article already 730 diggs!). Maybe then the companies would be able to take a look at those rates and really decide if they can afford to loose a quality-service Spotify with both ad (currently they use audio and unobtrusive banner ads) and pay revenues in the millions. Revenue that doesn´t yet compete with physical sales but still higher than most other digital services.
It’s possible that the record labels paid 10,000 euros for their collective shares. But also offered to not charge spotify any royalties until spotify’s due payments exceed the value of the shares owned by record labels (based on the prices that the venture NorthZone and creandum paid in round A).
I believe, based on sources, that the labels paid cold hard cash for their shares. We’ll see, this discussion is a great way to get the real details out.
actually, the idea that they may have “paid” a credit for royalties isn’t totally crazy. My sources say otherwise, but we’re digging.
In other words, theoretically, the labels could have “paid” millions of euros for the stock, maybe even transferred the money, and then received it back as pre-paid royalties immediately. But in that case it would still show up as an investment…so it doesn’t really work.
we’ll get to the bottom of this eventually.
Regardless of the financial agreements, it’s still pretty huge that all of the major record labels got together and invested in a single company. There must have been a hell of a good mediator involved in that deal. I’m also amazed that the media didn’t get hold of this earlier.
For anything to be kept quiet for so long in this digital age there must have been some VERY strict confidentiality clauses.
Why would the labels want to keep their involvement in Spotify so quiet?
I look forward to reading when Techcrunch get to the bottom of this!
http://www.soci...diamashup.co.uk out
I think Arrington is right. And I find it courageous of him to actually question the fearsome Swedish Press. I wonder how this will end….
Spotify rocks by the way..
I’d say that the labels were let in very early on and did indeed only pay some €8800. In return they made sure all the label related red tape was removed (at least for a while).
Thanks a lot for sharing crucial data i was looking it from many days. Good work TechCrunch Team.
Mike you have been covering the labels for a while now, you know what happened here:
“Well we are going to need a piece of your company to offset the full price of licensing you don’t have to pay us, so give us X amount of your company and only pay XX amount in licensing.”
To think the labels actually finally all invested money into a single venture (together) is very odd.
Does the shares offer also mean that Spotify got a discount on royalty rates?
Well, and if the info about the money wasn’t a typo, and indeed was the real money they paid?
This would pretty much add together to form the 10000 EUR that Swedish newspapers are talking about…
I’m curious to see how Spotify is going to react to Microsoft’s soon to be announced free music streaming service based on seeqpod
http://www.mobi...treaming-rumor/
Wow, this was a well researched article. Good post! It is reminiscent of a music label conspiracy. Hope it isn’t though. http://AppUseful.com
Spotify.
It’s poison.
ty, M.A.
No CookieBottom streams on Spotify? What kind of “music” service is this?
At http://www.thessayist.com we believe that “It is not what we get., rather what we contribute… that gives meaning to our lives.” Read to know more @ http://bit.ly/ROA0K
Rumor in Sweden that Niklas and Janus (skype) are the ones behind spotify. I know there is no mention of them in the released stories, however, I also heard about a year ago from a trusted source that these guys are starting some a (music-play) site and hiring a development team in SF…
I’m curious to see how Spotify is going to react to Microsoft’s soon to be announced free music streaming service based on seeqpod
http://tinyurl.com/ld9f2h
I wonder what the potify crew thinks about Microsofts soon to be announced music streaming service: http://www.mobi...treaming-rumor/
Seems someone is off by a factor 1000. So I’d guess that either Computer Sweden didn’t understand a kkr or keur or Arrington is seeing a k (kilo) where none exists.
My bet would be that the CS people doesn’t missed the k.
Sorry, strike that doesn’t
The prices on the stock could all be accurate if you assume they sold common stock to the labels and preferred for the rest. The labels’ total holdings aren’t a big enough block to outvote even one of the financial investors, so the stock would only be interesting in a homerun.
What rumor in Sweden? We must be in different “Swedens”
Good job, guys, on the lack of dilution, nice to see a young startup with the biggest swinging d in the room! Cheers from Gothenburg, Sweden, chrisco
TBH, what is the difference between Last.fm & Spotify?
interesting update on twitter:
http://twitpic.com/d11pz
As usual, programmers get screwed. Look at Strigéus’s share… he’s the guy who wrote uTorrent and Spotify!
Screwed? 2,6% of a valuation of €200 is not a screwed amount of money. He’s rich thanks to his skills!
Why don’t you come work for me for $10 and I’ll take $1000 that I earn with your labor. You’ll be rich thanks to your skills.
PS: Are you that stupid not to realize that these values are all BS?
Why don’t the labels just make a Hulu type website to stream all the music for free, on any device, and just make money on ads placed throughout the stream? This is not terribly complicated.
It will be interesting to see how this unfolds in regard to the international music industry. I am sure the artists creating will benefit wildly.
Interesting that the cap table doesn’t seem to include an employee pool. That should be another 10-20% dilution…
Am I missing something?
Remove this article you liars. Metro Teknik was right all the time.