Square Inc. has decided to purchase a majority stake in Tidal, the renowned music streaming service, owned by rapper Jay-Z. The news of Square’s deal with Tidal comes at an important time with the company’s plans for expanding its collection of financial tools for emerging artists and musicians. The value of shares of the payments startup, Square, has grown staggeringly in recent times. With a market value exceeding $100 billion, the share prices of Square have increased by three times.
What’s the Square’s Deal with Tidal?
The company led by Jack Dorsey agreed to purchase a majority of shares in the niche music streaming service, for a whopping $300 million. Looking at the cash on hand for Square at the end of 2020 i.e. $3.2 billion, it is clear that this deal is just a tiny dot for Square. Furthermore, Square’s deal with Tidal would not have any material impact on the financial results of Square in 2021, due to the trivial revenue of Tidal.
On the other hand, Square’s Tidal acquisition brings some good news for rapper Jay-Z, alongside a group of artists such as Beyonce and Chris Martin of Coldplay. All of them paid $56 million in 2015 for Tidal, which was known then as Aspiro. Square will pay for the deal in a mix of cash and stock to become the ‘significant majority’ owner of Tidal. Jay-Z and the other artist shareholders of Tidal can retain a certain level of ownership in Tidal.
According to a company release by Tidal, it will continue to operate independently within Square. In addition, Jay-Z would also join the board of directors of Square.
An Intersection of Ideas with Square’s Tidal Acquisition
According to the CEO of Square, Jack Dorsey, “New ideas are always around the corner of an intersection between two different fields and we believe that music and the economy have a lot of potential”.
Jesse Dorogusker, an executive from Square, would serve as the interim head of Tidal after the acquisition.
According to Jesse, “No one clearly knows the role of this acquisition in supporting the growth of Tidal. The future role of Square in taking Tidal and its business ahead is still a question that we have not been able to find an answer for. However, the favorable relationship between the existing market of Square i.e. commerce and payments and the music industry could spell new opportunities”.
He further added that one of the examples of the intersection between music and payments and commerce is by helping musicians in running their merchandise business. While artists sell tickets, they are also selling special experiences.
Read more about Square-Tidal Mashup
Dealing With Old Problems for Musicians
The long history of complaints about record labels exploiting musicians has come to a point of frustration. Therefore, musicians are turning to stream services thereby leading to the popularity of platforms such as Spotify. Now, many experts are calculating the benefits of Square’s deal with Tidal for the former. The deal can be beneficial for Square if it is successful in expanding beyond its core payments business.
Most probably, Square could look for opportunities beyond consumer payments to retailers for managing all forms of online consumer transactions. Square has proactively dived out from its core business for helping people with money transfer through its Cash app. Square has a plan to help music artists reach their merchandise to 36 million users of its Cash app.
Square’s Tidal acquisition might just be another approach for expansion for Square.
Square has considerable technical fluency and the required software tools for helping merchants in taking payments from consumers as well as staying connected with them alongside encouraging them for shopping. The same model could help musicians on Tidal connect better with their target audience and fans, thereby making more money.
Square’s CEO, Jack Dorsey, stated in his Twitter post that Square’s deal with Tidal is aimed at helping artists. He also pointed towards the partnership’s focus on the support the work of artists. He said that the acquisition will bring new listening experiences to the audience while bringing fans closer to each other. At the same time, the collaboration could also foster simpler integrations for merchant sales and new complementary revenue streams.
Overcoming the Challenges
Experts believe that Square’s Tidal acquisition cannot disturb the streaming world profoundly. Tidal has not been able to garner favorable subscriber numbers in recent times. However, digital music wholesale CD Baby estimates that Tidal has more potential than people assume it to be. CD Baby received 8% of revenue from Tidal and other third-tier services out from distributing the music of 800,000 independent artists.
However, another set of experts point out towards expanding the focus on creator services. The star power of Tidal along with the creator services could help in monetizing the hobbies of part-time creators. Square could also look for opportunities to develop credit or other products for artists. The strong brand power of Tidal and its access to artists keeps up Tidal in a favorable position. Square could leverage the brand power of the artists and make their way around the obstacle of acquiring creators.
At the same time, many other content creation services can also be setbacks for Square in its partnership with Tidal. However, the financial services business of Square could serve as its foremost strength, especially with its personal chartered bank. Square could achieve a profound advantage by offering advances to artists, taking over traditional roles assumed by record label companies.
CEO Jack Dorsey has also partnered on a Bitcoin investment fund with Jay-Z. He posted on Twitter that the Square-Tidal together will find new ways to support the work of artists and will offer the new listening experience to the users to bring them closer.
However, Dorsey didn’t add about NFTs (Non-Fungible Tokens) that are the unique digital trackers created using blockchain technology. Many artists have started attaching these NFTs to their work and selling them at auction. NFTs can’t be copied like regular digital work, thus providing buyers with sole ownership. In the past few months, the value of NFT transactions has grown to hundreds of millions of dollars.
Musicians have also started looking at NFTs. So, Square can help Tidal musicians to sell NFTs, by adding Bitcoin to its Cash app service. Square users generated $217 million of revenue by using the app to buy and sell Bitcoin, in Q4, 2019. With the increase in Bitcoin price, the revenue for Square also increased to reach $1.8 billion in Q4, 2020; surprisingly, it amounts to 56% of Square’s total quarterly sales.
Dorsey said, We’re going to start small and focus on the most critical needs of artists and growing their fanbases.
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The Future of the Square-Tidal Partnership
The most common inference from the deal between Square and Tidal is the improved opportunities for musicians to make money. Even though Square’s deal with Tidal seems trivial, it might spell a new ecosystem for musicians to achieve financial growth. Despite the popularity of Tidal with artists, it is still struggling with the number of subscribers.
However, the point of the acquisition basically focuses on the betterment of the financial status of artists. The facility of advance payments and a robust payment infrastructure can help Square is expanding its dominance in the music industry. If the deal turns out successful, then Jack Dorsey will be considered as one of the best strategic thinkers of all time!