Jay-Z: The entrepreneur
Jay-Z knows the music game inside out and plays it seamlessly on both sides of the fence: an artist and a producer but also a record executive and a talent manager, Shawn Carter is worth an estimated $ 520 million and is above all a serial entrepreneur who multiplied the hip hop driven equity he ammassed in a short time to build an empire where initiatives and companies are launched, grown and sold thanks to their brand power. Artists are the kind of brands Jay-Z is most familiar with. When observing and analyzing his streaming platform Tidal, his dna provides the most proper context.
Tidal: The USP
Tidal was immediately positioned on the market as an artist-owned service: Launched in autumn 2015 after Jay-Z bought it from Norwegian parent company Aspiro (also owning WiMP) for $ 56 million and reshuffled the company management, it immediately differentiated from competing platforms via a “lossless” music files offer. “Lossless” music broadly translates into CD-quality audio: FLAC format delivers audio in 1,411-kilobytes-per-second files which subscribers can access to paying $ 19.99 per month – or they can opt for the Spotify-like $9.99 payment tier (standard-quality files of 96 kbps or high-quality files of 320 kbps).
The artist-owned mission is crucial to the marketing rethoric exploited by Tidal so far. Its declared current stakeholders are16 celebrities representing all main music genres that were introduced at the unveiling event (Alicia Keys, Arcade Fire, Beyoncé, Calvin Harris, Chris Martin, Deadmau5, Daft Punk, Jack White, Jason Aldean, J. Cole, Jay Z, Kanye West, Madonna, Nicki Minaj, Rihanna, Usher); besides them, Softbank: the giant owner of mobile carrier Sprint allegedly agreed on purchasing a minority stake last April, thus projecting Tidal’s value towards $250 million.
Tidal’s Unique Selling Proposition depends on its artist-owned structure and on its high quality tier offer.
An exclusivity-driven growth model
Tidal’s strategy has relied on marketing exclusives since day one. Some examples? Beyoncé’s acoustic “Die With You”, dedicated to Jay-Z behind Tidal’s closed doors; the “Bitch, I’m Madonna premiere”; Prince’s Baltimore livestreamed show; Nicki Minaj’s “Feelin’ Myself” premiere; Jay Z’s only-rarities NYC sold out show; Lil Wayne’s “FWA” album; Rihanna’s “ANTI” album; Kanye West’s “THE LIFE OF PABLO”.
Pending confirmation, this is how Tidal’s user base scaled in less than one year: first it went from 510,000 (the Aspiro era) to 1,000,000 subscribers in less than six months (right after Jay-Z started managing it); then, just recently and courtesy of Rihanna’s and Kanye West’s exclusive albums, it appears to have skyrocketed close to 2.5 million subscribers. It’s worth noticing that music exlusives are very expensive by nature: theirs is a brand awareness scope and they mainly function as short-term tactics opposite to a long term growth strategy. It is also useful taking into account how exclusives affect the bottom line in a streaming business where properly controlling the cost structure to generate profits has so far proven an impossible achievement (check with Pandora, iTunes, Spotify, Deezer – or, more sadly, with RDIO).
Therefore, a simple question arises: what good can celebrity exclusives do to the growth of a business based on a streaming platform whose success depends on offsetting a heavy cost structure with a paid subscription generated revenue and where traction and retention play key roles for a recurring revenue flow? Simple answer: not much good, as turning hype into revenues and loyalty looks like a totally different game. But the terms of the matter would dramatically change if you could launch those exclusives virtually for free. How? Well, that would happen if the celebrities involved were your own team mates, and if their potential payout were way, way higher than the immediate latent cost involved in allowing access to their album only to Tidal subscribers (let alone that their streaming royalties will come in through Tidal anyway, eventually). Take Kanye West and “The life of Pablo”: they’re respectively a Tidal shareholder and his new album (available only for Tidal subscribers). Kanye and Pablo: What a couple of magnets. What a couple of super quick subscription drivers. What a couple of rapid platform value multipliers.
The Exit: meet the phone makers
Marketing exclusives can effectively hack growth when they are not expensive, which (again) happens when your team mates are your fellow shareholders and their payout is an exit. That is, a sale.
A sale is the obvious final solution for your average financial investors, who help you get close to that stage and aim at maximizing the company value (driven by the number of paying subscribers, their lifecycle and their lifetime value). Trying to turn that huge attention generated by exclusives into revenue will be the buyers’ burden – later on. Or not: maybe they’re buying into a missing piece of their much larger eco-system – like Apple did with Beats Music, eventually expanding the paying user base from 250,000 to 11 million, and like Samsung might do with Tidal. (Well, that’s open to debate…)
According to Mark Cuban, when an entrepreneur has an exit plan, his startup is doomed. Perhaps that…