Is Spotify Going Bankrupt In 2017?

Wall Street is rejecting their IPO (again). A $1.5 billion debt pile is now a ticking time bomb. Major labels are taking 70+% of revenues. Is this the year that Spotify implodes?

Spotify is a damn good streaming music service. And they’re beating almost everyone at this game. That includes some of the largest companies in the world: Apple, Google, Amazon, and Microsoft. In fact, Spotify has double the number of paying subscribers that Apple Music has. Spotify may also have more customers than all of these competitors combined.

But at what cost?

Now, it looks like Spotify is postponing their long-awaited IPO. Again. According to details leaked by TechCrunch, the mega-streamer won’t be going public until at least 2018, thanks to continued Wall Street rejections. “The delay would give Spotify more time to build up a better balance sheet and work on shifting its business model to improve its margins,” TechCrunch reports.

“The financial climate has changed…”

A major problem is that Spotify simply isn’t making enough money. Go figure. They’re growing fast, but the underlying financials are rotten. “Three to five years ago, you could have an IPO based solely on user growth and promises of the future,” a TechCrunch source relayed.

“But the financial climate has changed now. Today you have to show some path to profitability, especially at the valuation that Spotify has been targeting.”

That might explain why Spotify is frantically trying to renegotiate its major label licenses. Currently, the company is paying at least 70% to the big three: Universal Music Group, Sony Music Entertainment, and Warner Music Group. According to data released last year, Spotify has paid a cumulative $5 billion in royalties since inception, none of which includes overhead, taxes, and guaranteed equity shares (if an IPO occurs).

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Tim Cook: TV Change is Coming

Apple doesn’t have a solid TV strategy yet. But CEO Tim Cook thinks he can see the writing on the wall—the much loathed cable-TV bundle is on its deathbed.

Speaking on the earnings call after Apple posted a record first quarter, Cook said (emphasis added):
The way that we participate in the changes that are going on in the media industry that I fully expect to accelerate from the cable bundle beginning to break down is, one, we started the new Apple TV a year ago, and we’re pleased with how that platform has come along. We have more things planned for it but it’s come a long way in a year, and it gives us a clear platform to build off of.

Apple is on the fourth generation of the Apple TV. It now has an app that makes recommendations across streaming-video services and has a universal search function; it is currently limited by only allowing you to find a program across a limited selection of third-party services, but it has the potential to become the online equivalent to a TV Guide for all programming. (The company is also developing a library of original content tied to its Apple Music subscription.)

Media experts have been forecasting the death of the traditional TV bundles for years (BTIG Research media analyst Rich Greenfield tweets with the hashtag “#goodluckbundle”)—and it hasn’t happened yet. But there has definitely been some movement, as Cook pointed out.

Popular cable networks like ESPN are losing subscribers because of unbundling, cord-cutting is becoming more common, TV brands like HBO offer their own subscriptions on platforms like Apple TV, and streaming services like Netflix are hitting member records.

So far, bundling hasn’t as yet disappeared in the US. It’s just taken on new forms.

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Google starts Unplugged Streaming TV Service

Alphabet’s (GOOGL) Google unit has reached a final agreement or one in principle with CBS (CBS) , Disney (DIS) , Viacom (VIAB) and 21st Century Fox (FOXA) and could launch its streaming video service as soon as February, according to people with knowledge of Google’s plans.

Time Warner (TWX) is in talks as well, but they haven’t yet progressed as far as the others, said one person with knowledge of the situation.

The video streaming service, Google Unplugged, will be operated by Google’s YouTube service and will join a growing number of subscription video-on-demand offerings lining up to offer consumers so-called skinny bundles of networks that are less expensive than those offered by cable or satellite operators.

The service initially was expected to be announced at the Consumer Electronics Show that begins in Las Vegas on Jan. 5, but unspecified technology delays and the need to finalize contracts have pushed it back to February or later, according to two knowledgeable people.

The crowded field of cablelike streaming services includes DirecTV Now, which AT&T’s (T) DirecTV satellite service launched in November, as well as Sony’s (SNE) PlayStation Vue service and Dish Network’s (DISH) Sling TV.

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Facebook Tunes Into Television’s Market

The social network is developing a video-centric app for television set-top boxes, including Apple Inc.’s Apple TV, people familiar with the matter said, giving it a home for video content—as well as a new vehicle for video advertising.

The app is one of several Facebook projects aimed at making it a “video-first” company that can compete for television ad dollars. The social giant has been marketing its live-streaming capabilities, testing a new video ad product and integrating more videos into Instagram, its photo-sharing app.

Facebook is also in discussions with media companies to license long-form, TV-quality programming, people familiar with the situation said. A set-top box app would be a natural way to distribute that “premium” content and make it accessible on TV sets.
Facebook is already the second-biggest player in digital advertising, after Alphabet Inc.’s Google. But the social-media giant said last November that its main source of revenue, the news feed, was running out of room for more ads.

As a result, executives warned that revenue growth would “come down meaningfully” starting in the middle of this year. Facebook is due to report its fourth-quarter earnings on Wednesday, and analysts expect revenue to have increased 46%—the slowest rate of growth in five quarters—to $8.5 billion, according to Thomson Reuters.

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Sky: ‘Discovery demanded £1bn’

Sky has hit back in its carriage dispute with Discovery, which threatens to see the removal of 12 of the programmer’s channels from its pay-TV and NOW TV services, accusing it of “misleading claims and aggressive actions”.

In a Statement posted on its website, Sky says it has worked “really hard” for more than a year to get a deal done for its customers with Discovery, saying it is disappointed with its misleading claims and aggressive actions. “We now feel it’s time to set the record straight. Because despite our differences, we love Discovery too,” declares Sky.


It says it was prepared to pay “a fair price” for the Discovery and Eurosport channels and invest more in those channels to make them even better for its customers. “We have offered hundreds of millions of pounds to Discovery, a $12 billion (€11.3bn) American business, but that wasn’t enough. They asked the Sky Group to pay close to £1 billion for their portfolio of channels, many of which are in decline,” it claims.

“Sadly, we have now had to prepare for Discovery to take their channels away from Sky customers, as they have threatened to do. It is Discovery’s choice to do this, not ours. We never left the negotiating table and they haven’t come back to it since they made their threats public this week,” it advises.

“Sky doesn’t boot channels off our platform. If Discovery don’t want their channels to disappear, as their public campaign suggests, they could have made arrangement to stay on Sky, including free to air with advertising funding or with their own subscription, but they’ve chosen not to do so,” it says.

“Our commitment to our customers is this: We will spend every penny that we were going to pay to Discovery on more and better content that our customers value. This will come from sources around the globe and home grown shows and documentaries from the UK. We will continue to offer customers a huge range of content including hundreds of shows from The History Channel, National Geographic, PBS, Sky Arts and Sky Atlantic, along with more amazing sport on Sky Sports Mix, available to all our customers,” it states.

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WFA Sees Marketers Rethinking Programmatic Strategies

Ninety percent of members belonging to the European trade body are reviewing their contracts with agency trading desks to gain more control and transparency, the organization said in a report released Monday. The WFA, which represents Procter & Gamble, Unilever and other advertisers, surveyed executives in global media positions at 59 member companies across 18 verticals about their evolving relationships with trading desks.

When programmatic was emerging, many marketers handed budgets to agency trading desks without a formal pitch process or contract in place, said Matt Green, head of global media and digital marketing at the WFA. Now that programmatic is an essential part of the media plan, marketers are looking for more formalities to protect their interests.

“In the original days, people were implying that their agencies had maybe not nudged them into programmatic, but it became a default thing,” he said. “Now people are spending so much money in programmatic, and they recognize a need to put this more formal wrapper around it.”

While more than half of marketers that were surveyed still work with their agency trading desks, many are also working with independent trading desks, which can range from a client licensing and operating a demand-side platform in-house to working with a programmatic shop not owned by a major holding company. Use of these entities has increased 12% since the WFA’s last survey in 2015.

But most marketers aren’t eliminating their agency trading desks completely. Seventy percent of respondents split their spend between independent and agency trading desks, and more than 20% of respondents embrace a hybrid model, whereby they own the technology contracts but the agency manages programmatic spend.

The WFA’s marketers have the scale to feasibly manage media in-house, but leaving the management to their agency is easier from a staffing and flexibility perspective, Green said.

“Some people say it’s easier to pay managing fees and be able to pull the plug on that at any point,” he said. “If I have people on the payroll, it’s a bit more difficult.”

Agency trading desks are adapting their models to fit client sentiment. Forty-two percent of holding companies have expanded programmatic capabilities down to the agency level, as clients often feel more comfortable working with their agency partners than standalone trading desks. Twenty-nine percent of respondents said such changes have made them satisfied with the transparency provided by their agency trading desk.

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Research reveals huge lack of consistency in global pay-TV pricing

One size does not fit all in the global pay-TV industry, with research from Teligen, covering 115 providers in 31 OECD countries, showing significant price differences between countries and providers.

The Strategy Analytics division’s new report, Pay TV Prices in OECD Countries, November 2016, not only revealed significant differences in package prices between providers in the same country but also showed great variation in the structures and underlying technologies of the pay-TV offers, even when benchmarking the most basic offers from each provider.

Fundamentally pay-TV has remained stable in most countries over a period of time, despite the introduction of skinny bundles driving the minimum price down in select countries such as Canada and Denmark. This was also the case the last time Strategy Analytics investigated the phenomenon.

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Connected TV growth slows in the US

Growth in connected TV sales is slowing in the US, as penetration reaches into most households, according to research from The Diffusion Group (TDG).

The study shows that penetration of Internet-connected TVs among US broadband households has increased nearly 50% since 2013, from 50% to 74% at year-end 2016. And that means that sales are slowing.

Growth between 2015 and last year was only 4%, compared to 22% between 2013 and 2014, and another 15% between 2014 and 2015.

Besides saturation, broadband penetration has a hand in this. As TDG first noted in 2004, the diffusion of connected TVs would closely follow broadband uptake, and as broadband growth begins to slow, so too does the number of new connected-TV users.

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Neglect customer experience at your peril, research warns Pay-TV providers

Pay-TV operators can no longer simply rely on the strength of their content offering to maintain subscriber loyalty, but must raise their customer relationship management game to gain ground in an increasingly competitive marketplace.

This is the top-line find of a survey of more than 6,200 consumers in Australia, Brazil, Germany, Singapore, the United Kingdom and the United States from subscription, billing and CRM specialist Paywizard. The Facing the Perils of Failed Customer Experience survey carried the warning for operators that more than four-fifths of consumers would cancel a pay-TV subscription due to poor customer experience, such as if service and support were lacking and the company seemed out of touch with their needs. Indeed, the data showed that a quarter have actually done so in the past year.

By contrast, the survey also found that almost half (46%) of consumers have retained a digital pay-TV subscription they might otherwise have cancelled because of positive customer experience. The findings show, said Paywizard, that younger consumers place greater value on customer experience when it comes to sticking with a provider. Just under three-fifths of those under age 35 say this has been a factor in keeping a service over the past year.

Nearly three-quarters of consumers who have added a digital pay-TV subscription over the past year end up increasing their overall spend on television and entertainment. On the other hand, more than a quarter still reduced total TV spend by downgrading their general pay-TV package or cutting other subscriptions – making clear that there are losers among operators that fail to build strong bonds with their customers.

To be on the winning end of consumers’ decisions regarding their TV and entertainment budgets, Paywizard advises pay-TV operators to overcome a ‘dip-in, dip-out’ attitude on the part of subscribers. The survey revealed that most consumers intend to drop some pay-TV services – for instance, cutting part of a cable or satellite package – if they take another, such as an on-demand video subscription. Almost two-thirds of those who have not taken a new subscription in the past would cut back on other digital subscriptions or downgrade a general package to bring down the cost if they were to sign up to a new or additional pay-over-the-top (OTT) service.

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Millenials make up half of US cordless users

Research from GfK MRI has revealed that those aged 18-34 account for 43% of the so-called cordless generation who have yet to subscribe to cable, satellite or fibre optic TV service, as well as those who have cut the cord.

This means, suggests GfK MRI’s Survey of the American Consumer, which sampled around 25,000 people, that almost a third of US millennials are cordless, compared with 16% of the baby boomers demographic. In addition, such millennials are turning to streaming for TV and video, spending almost two-thirds (65%) of their viewing time streaming via a TV set or other device. That again is almost double the proportion for cordless boomers (36%), who instead spend the majority (56%) of their viewing time watching live TV on a TV set over the airwaves.

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