Tidal, a music streaming service owned by famous rapper and producer Jay-Z had been smacked by Spotify (SPOT), the leader in the music streaming industry. The ambitious project did not go as well as planned and the company is eventually sold to Square (which is founded by Jack Dorsey who also founded Twitter) for $300 million not so long ago. Compared to the market cap of $50 billion for Spotify, the value of Tidal is really low, but it is cheap for a reason.
Tidal is a music streaming company that focuses on high audio quality to try to separate it from other competitors. It is being offered in 56 countries globally but it has never disclosed its subscriber’s statistics since 2016 where subscribers’ amount stood at 3 million at the time but most people claimed that it is losing subscribers over time. Tidal started its business well initially with a lot of popular music artists owning and promoting the service which attracted a lot of users from their large fan base. It also advertises itself for having exclusive content from different artists that other platforms do not offer. The tidal app was ranked in the top 20 in the US app store but quickly fell out of it weeks later. So what went wrong?
What went wrong?
Tidal never improved its platform but Spotify keeps improving its platform, yet Tidal’s subscription fee is substantially higher. Tidal’s premium ad-free subscription is $19.99 per month is Spotify’s premium subscription is only $9.99 per month which is half the price of Tidal’s. Also Tidal overestimated the demand for high audio quality, most of the general population do not actually care about the audio quality that much and they might not even tell the difference. Therefore it is reasonable for them to choose Spotify over Tidal. Another Tidal’s selling point is they have video streams, and access to artists’ events, concert tickets, live shows, and more. However, this strays away from the original purpose of a music streaming service.
Customers use music streaming services to listen to music but not to watch videos, if they were to watch live streams they would have chosen Youtube which is free of charge. The whole direction of where Tidal is going is wrong at this point and meanwhile, Spotify is increasing its attractiveness by allowing music submissions from any artists and focusing more on the podcast area. The podcast area is big as it combines the two biggest audio areas music and podcast together in one platform and customers are able to access both at the same time without having to pay any extra fees.
As Spotify starts to gain more and more customers, artists are more tempted to sign a licensing deal with Spotify which left Tidal with less and less exclusive content over time. At this point Tidal is going on a downward spiral, the branding of Spotify has successfully spread around the world and Tidal is getting harder and harder to attract new customers and customers tend to stick with the plan they are used to if they are satisfied by the product offerings. With the weak branding and customer base that Tidal has, it is unable to expand into more countries. I live in Hong Kong and none of my friends have ever heard of Tidal and the app isn’t even on the Hong Kong app store. The initial idea of Tidal is not bad but most decisions the company has made since its product launched had been in the wrong direction which results in losing tons of market share and the estimated total addressable market for Tidal in the music streaming industry is currently only 5%.
Can Square turn it around?
Jay-Z has decided to take his money back and sell the company to Square (SQ) for $300 million and this acquisition is one of the most interesting acquisitions recently. Tidal is losing money every quarter but Jack Dorsey, CEO of Square is dedicated to turning the ship around by combining the Square payment ecosystem with Tidal. This is certainly a nod to Apple’s tactic of putting Apple Music into its ecosystem and has resulted in a huge success. Square’s cash app currently has 30 million active users each month and the cross-selling opportunity could be huge, however, Apple’s ecosystem is service-based whereas Square’s ecosystem is payment based which makes it harder to integrate Tidal’s with Square’s customers.
Jack Dorsey is trying to turn Tidal into a music platform rather than a streaming service that allows customers to book tickets, pay artists, access live events, buy artist’s products, or record by Square’s cash app. I am skeptical about whether this will work but a change is definitely needed to revive Tidal, I think overall this is a good investment by Square as the risk and reward ratio is very high. $300 million is just a tiny portion of Square’s market cap yet if this ambitious project succeeds Square may own a music ecosystem that is worth billions. I will certainly be following this acquisition going forward as this is one of the most interesting and ambitious projects I have seen in a while.
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