Jay-Z may be a rapper, a husband and a dad, but more than anything else, he’s a business.
In addition to his record label, clothing business interests and management company, Jay-Z just paid $56-million dollars to buy a Scandinavian media company called Aspiro, which owns two music-streaming services, WiMP and TIDAL.
The company has about 500,000 subscribers, which means Jay-Z is starting out way behind Spotify and Pandora, who count their subscribers in the tens of millions. In addition, Apple — with its vast iTunes library — is expected to launch its streaming service this year.
Is Jay-Z is making a smart move? Can his caché in the music industry give him a leg up on the competition? Glenn Peoples, Senior Editorial Analyst at Billboard magazine, joins the Frame to explain why he thinks Jay-Z knows what he's doing.
Why does this move make sense for Jay-Z?
Subscription service is a really expensive game to get into and it can take 18-to-24 months just to launch a service. So he can come in and, for $56 million, get a service with about half-a-million subscribers. They have licensing deals in many European countries, in Canada and the U.S., and he can hit the ground running, which he couldn't do if he were building from scratch.
Hitting the ground running is very important, because he has relationships, not just with his wife, but with a lot of other artists who are part of his Roc Nation company — Kanye West, Rihanna. Can you explain how he might be able to leverage that relationship into this new enterprise?
Jay-Z must have one of the best Rolodexes in the music business. He could leverage artists on his record label, artists that he manages, maybe even bring in athletes to help promote these services. I think there are a lot of opportunities here to use Roc Nation to bring awareness, to promote, to bring content to the service. And sometimes exclusive content is really important to a streaming service, and he can do that possibly better than any single person in the business.
Is there a way that Jay-Z might be able to differentiate his streaming services from others in the marketplace right now?
When we talk about Jay-Z being behind and having to play catch up with Spotify and Deezer and even Rhapsody, I don't know if he necessarily has to play catch-up. This is a very young market. Aspiro has a service called Tidal that just launched in the U.S., U.K. and Canada. It's a high-definition audio streaming service and it does have some high-def video as well. High-def streaming is a very new type of service and that could be a niche. That's just one way he can carve out a really good part of the business.
It's been reported that even Spotify, which has a lot of subscribers, is not profitable at this point. What's keeping these services from turning a profit?
The margins are tough and these services pay out about 70 percent of revenue to rights holders, so they have to subsist on the other 30 percent. As you're growing, it takes a lot of money in the first many years of the company to grow to the kind of scale where you can, hopefully, turn a profit. I don't think it's bad at this point that these companies are losing money. It's just like startups anywhere else, just in the case of these music services, the royalties they pay are quite high.
There are a lot of audiophiles who say Beats By Dre aren't really the best headphones, but because Dr. Dre is associated with them, they have a caché. Does Jay-Z's brand name mean a lot to this new enterprise? And is there a way to quantify what that name recognition means?
I think there is a way to quantify it. It would probably take an economist and a few months and a really good academic paper. I don't know if I could do that. I think you could just take a look at Jay-Z and his career, the types of fans he has in this country and all around the world. He's not playing to small audiences in major cities, he's playing all around the country, in major venues and stadiums to all kinds of different fans. So he has an appeal that's across the board. He's a crossover artist if there ever was one.