3 Kings

by Zack O'Malley Greenburg

  One of the first artists Wallach contacted was Diddy, whom he knew from his Chester French days. (In 2010, the band released the madcap Vegas anthem “Cîroc Star” with Diddy, who rapped, “Half a billion stashed, I’m ready / Buy the bar, that’s petty / I buy the whole company.”) After a meeting in New York, Diddy invested an undisclosed sum in Spotify. Wallach also persuaded Justin Bieber’s manager, Scooter Braun, of the streaming service’s merits; Braun and Bieber put up money as well. Perhaps Wallach’s biggest coup: Troy Carter, who was managing Lady Gaga at the time. He not only invested but eventually joined Spotify as global head of creative services.

  Since 2011, Spotify has blossomed. Though its path to long-term profitability is complicated by the whims of the music streaming business—its operating loss ballooned to $189 million even as revenue surged 45 percent to $1.2 billion in 2014—its valuation sat at $8.5 billion when this book went to press. Those who invested in 2011, such as Diddy, likely had their stakes diluted as new money came in, but their investments are now worth many times what they initially poured into the company. Those returns could grow even more impressive in the public markets.15

  All of this comes as little surprise to Wallach. “Artists understand media and communications as well as anyone,” he says. “I don’t know why some random [venture capitalist] should have a better intuitive understanding.”16

  Indeed, with more than sixty million paying subscribers by 2017, Spotify had emerged as the king of interactive streaming. But Dr. Dre’s new employer had an eye on the throne. Apple Music, launched a year after the Beats acquisition, was the tech giant’s attempt to win. In addition to an essentially unlimited catalog of songs, the service contained elements sourced from Beats Music, which Apple shuttered in late 2015, much to the dismay of its three hundred thousand or so U.S. subscribers, who’d grown fond of its curated playlists.17

  Apple Music attempted to distinguish itself from Spotify and others by ramping up the human element, starting with Beats 1, a twenty-four-hour worldwide live virtual radio station available only to subscribers. The flagship channel featured three DJs, all of them well-known on their own turf: Julie Adenuga (United Kingdom), Ebro Darden (United States), and Zane Lowe (United Kingdom, via New Zealand).

  Perhaps even more important were Apple Music’s celebrity broadcasts, like Elton John’s Rocket Hour and Dre’s own offering, the Pharmacy, in which A-list artists brought their favorite music, new and old, to eager audiences. Apple Music now boasts dozens of similar shows, with hosts including Drake, Pharrell Williams, DJ Khaled, Mary J. Blige, Mike D of the Beastie Boys, and Corey Taylor of Slipknot.

  Today, Apple Music has more than thirty million subscribers, each paying $9.99 per month. There is no free tier, unlike with Spotify, which has a similarly expansive catalog. To lure users away from its rivals, Apple has been banking on content like the aforementioned shows, as well as albums by the likes of Drake and Dr. Dre, both of whom made recent works available exclusively on the service before expanding their availability to other platforms. A desire to broaden that strategy may have been the impetus behind rumors of an Apple buyout of Tidal in mid-2016, but the year came and went without a deal.

  Though I couldn’t get any current Tidal employees to talk during my trip to Norway, I was able to gain a better understanding of the company through interviews with former employees and executives in Oslo. They all offered valuable insights that informed the writing of this chapter, though most refused to go on record, citing fear of legal action. One who didn’t mind talking openly was Gunnar Sellaeg, the CEO of Tidal’s parent company, Aspiro, from 2006 to 2012, before Jay-Z came into the picture.18

  Sellaeg took me through the company’s murky history over lunch. Aspiro was founded by a trio of Swedish entrepreneurs in 1998, initially focusing on mobile business services (using text messages to book plane flights, for example).19 It wasn’t particularly successful at first, but the company found a profitable focus—mobile ringtones—and reorganized itself with that in mind. By 2004, all that was left of the original Aspiro was the name and shareholder structure. After a public offering, Schibsted, arguably the most powerful media conglomerate in Norway, took a 40 percent interest. Sellaeg, who had been working as the head of Schibsted’s media divisions, became Aspiro’s CEO in 2006; by that point, it was one of the largest ringtone companies in the world. When that business began to falter a couple of years later, Sellaeg led the company on a quest to find promising new income streams.20

  In Sellaeg’s mind, if Aspiro could tap into an unlimited buffet of music to use for ringtone downloads, surely there was a way to build a database of millions of songs that could be accessed directly from mobile phones and computers. His team put together a prototype, giving it the working name WiMP (wireless music player). The word did not have a negative connotation in Scandinavia, and Sellaeg figured they could always rebrand it if they ever wanted to expand to the United States. When Spotify launched in Sweden, though, it almost immediately became the dominant player in the space. “It led us to take a different route,” says Sellaeg. “We wanted to become the service for music lovers.”

  Aspiro rolled out WiMP in Scandinavia and northern Europe, offering the high-quality sound favored by audiophiles. The company curated songs for users and tried to feature local artists; it also prioritized paying higher royalty rates than other services. “They were always giving three times as much, as far as royalties,” says rapper and label owner Tommy Tee. “So they were always valuable to us as artists and me as an independent label.”21

  WiMP soon grew to five hundred thousand active users, but it still hadn’t bothered to change its name. That didn’t seem to hurt its appeal, at least in Scandinavia, as the company struck a $15 million partnership with Norwegian telecom giant Telenor to provide content; subsequently, the latter’s subsidiary, cable provider Canal Digital, made WiMP available to hundreds of thousands of its customers, who could stream music from their televisions or sign up to get access on their phones. Sellaeg left Aspiro in 2012 to join Telenor, eventually becoming its chief of product.22

  At Aspiro, new CEO Andy Chen oversaw the creation of the Tidal brand—essentially identical to WiMP but with a name more appealing to English-speaking audiences—and launched it as a $19.99-per-month hi-fi-only service in the United States and the United Kingdom. (Chen did not respond to a request for comment in time to be interviewed for this book.) The focus on audio quality wasn’t only about appealing to audiophiles: observers point out that securing the rights to only the hi-fi versions of music catalogs is cheaper than tacking on the regular-quality editions as well.23

  Labels recognize that most consumers don’t want to pay $19.99 per month for hi-fi streaming, so they are less stingy with those rights than when licensing their catalogs for $9.99-per-month regular-quality subscriptions. Spotify gained rights to both, along with permission to operate a free tier, only after negotiating for years—and forking over 15 to 20 percent of itself to the major labels, a stake worth north of $1 billion today. (The move upset musicians on whose backs the service was built, as there was no initial provision to compensate acts with any of that equity; Tidal later touted its artist-centric ownership structure as a fairer alternative.24)

  In the fourth quarter of 2014, Aspiro’s sales increased 8 percent to roughly $8 million, but the company declared a net loss of $4 million. Though hemorrhaging cash is not terribly unusual for a streaming service, it can be problematic if there’s no war chest upon which to fall back. Aspiro’s quarterly report indicated that the company didn’t have enough cash to make it through the year, let alone strike huge new deals with major labels. In addition, the vast majority of Aspiro’s 500,000 subscribers came from WiMP, many through the Canal Digital arrangement. Tidal had just 12,000 subscribers, which explains why nobody in Oslo appeared to know what it was when I asked.25

  Enter Jay-Z. One of the rapper’s lieutenants had caught wind of Aspiro’s struggles and brought the company to his attention.
Someone in Aspiro’s Oslo office got a call in late 2014 from a party expressing interest on behalf of an anonymous big-name U.S. investor who wanted to keep a low profile for the time being. Says journalist Saeter: “Someone told us that they thought it was Donald Trump.”26

  In the waning days of 2014, Jay-Z materialized from the shadows with a $56 million offer for the company through an entity dubbed Project Panther Bidco. The number represented a premium of roughly 60 percent over Aspiro’s share price at the time, and its investors enthusiastically accepted. Several months later, Jay-Z and his cast of high-profile artist-owners officially relaunched the service.27

  His logic for buying the company was clear. Tidal’s hi-fi strategy would never allow it to achieve large-scale growth; most consumers can’t tell the difference between hi-fi and regular streaming and would rather save ten dollars per month by signing up for the lesser version. Jay-Z knew he needed to get the rights to the latter. That appears to be why he took on artist-owners diverse not only in genre but in label affiliation: Universal (Kanye West, Madonna, Rihanna), Sony (Beyoncé, Daft Punk, Alicia Keys), Warner (Coldplay, Jack White), and indie (Arcade Fire, Jason Aldean). Music companies want to keep their superstars happy.

  “I would assume that the record labels would listen much more to Jay-Z and his friends than to me and my friends,” says Sellaeg. “If I was a label, I would listen more to them.”28

  Sure enough, almost as soon as Jay-Z announced his roster of artist-owners, he got the major label clearances needed to expand beyond hi-fi—seemingly without giving up any equity to the labels—and rolled out regular-quality service with an essentially unlimited menu of songs for $9.99 per month, just like Spotify (but without the option of a free tier). “It’s sort of taking the power back, putting it back in our hands, instead of [labels saying], ‘This is what we’re going to do,’” Aldean told me. “Now it’s us going, ‘No, no, this is what we’re going to do, because this is the way it should be.’”29

  Tidal made good on its exclusive-release strategy in 2016. Rihanna launched her new album, Anti, in late January, making it available for streaming only on Tidal for its first week. In mid-February, West released what turned out to be a rough draft of The Life of Pablo (as in Picasso) exclusively on Tidal. The album underwent several subsequent tweaks to lyrics and beats, with West calling it “a living, breathing, changing creative expression” and declaring that the record would “never be on Apple.” (By the end of March, he’d changed his mind.) Tidal reported that The Life of Pablo had garnered 400 million streams in two weeks and 250 million in its first ten days, topping Spotify’s most popular album at that point (Justin Bieber’s Purpose).30

  In April, Beyoncé launched Lemonade on Tidal, and for several days it wasn’t available for download anywhere else. (At press time, the album could be streamed on Tidal, but not Apple Music or Spotify—same as much of Jay-Z’s discography.) Even as reports emerged that Tidal’s annual loss had widened to $28 million in Jay-Z’s first full year as the company’s owner, brighter news followed in the form of subscriber numbers: 4.2 million, according to several outlets.31

  During my trip to Norway, however, Saeter and Tobiassen released their exhaustively reported story in Dagens Naeringsliv, revealing that Tidal had drastically inflated its numbers and let inaccurate reports go unchallenged. The real total, Saeter and Tobiassen said, was closer to 850,000. There were irregularities galore. Apparently, 170,000 subscribers appeared overnight after Jay-Z tweeted that his company had hit the one million mark ahead of the Tidal X show in late 2015; this seems to have been accomplished by reactivating dormant Canal Digital accounts.32

  As the writers had suggested it would, their story painted a picture of a company on the brink of insolvency desperate to be seen as successful, with day-to-day operations guided to a surprising extent by Jay-Z’s 40/40 Club partner Desiree Perez. (Perez also boasts a hefty résumé when it comes to distribution—of illegal drugs, not legal music—during the 1990s.)33 On my way home from Norway, I picked up a physical copy of the report at the airport; the story, which came out the day of Donald Trump’s inauguration, was stillborn in the stateside press cycle. But its findings were quite damning, down to the print headline, a classic Jay-Z lyric turned back on the rapper and his dubious subscriber count: “Men lie, women lie, numbers don’t.”

  Is it possible that Tidal could so thoroughly torture its numbers that the larger figures could technically be true? Maybe. In statements by the company, often filtered through the press, it’s often unclear whether the totals reflect commonly used metrics, like active monthly users, or measures that would naturally be much larger, like total user count. Even Jay-Z’s aforementioned tweet was ambiguous: “1,000,000 people and counting.” By early 2017, perhaps it’s possible that Tidal had signed up 4.2 million users in its entire history, with the help of those Canal Digital subscriptions and myriad free trials. But if that’s the total being touted, it’s a hollow number. The only thing that really matters is the number of active subscriptions; free trials and canceled subscriptions obviously don’t generate any cash.

  Tidal did threaten legal action against its former owners in April 2016, claiming that the service’s actual subscriber count vastly trailed the half-million total stated at the time of the acquisition. But even if it turned out that Tidal and WiMP had zero subscribers at the time, it still wouldn’t account for the difference between 850,000 and 4.2 million.34 Those who were at the company before Jay-Z took over are adamant that there weren’t any discrepancies with user numbers on their watch; as a publicly traded company, they were held to rigorous standards. “We just counted those who were actually active,” says Sellaeg. “I see there are different ways of doing that now.”35

  In the end, it didn’t really matter if Tidal was plumping up its figures. On January 23, thirty-six hours after I returned from Norway, the company put out a press release announcing that Sprint had purchased a 33 percent stake in Tidal. Billboard reported the investment at $200 million, valuing Jay-Z’s company at $600 million, more than ten times what he paid for it. He and his two dozen artist-owners would stay on, with plans to dole out more exclusives to Sprint’s forty-five million customers—including Jay-Z’s 4:44, released shortly after the deal’s announcement. The company also pledged to dedicate $75 million annually to artist initiatives and releases. Added Jay-Z in a statement: “Sprint shares our view of revolutionizing the creative industry.”36

  The quote was classic anodyne press release material, but the message couldn’t have been clearer: Jay-Z had pulled off the same feat he’d achieved with Rocawear, convincing a multibillion-dollar company in search of cool points to cough up a nine-figure sum for a generic product upon which he’d sprinkled his stardust. The Tidal move also smacked of his Armand de Brignac strategy. Once again, he had purchased a generic European consumer product that Americans hadn’t heard of, dressed it up, and peddled it as a high-end specialty item. As he bragged in the song “U Don’t Know,” he could sell ice in the winter, fire in hell, water to a well—and with Tidal, he had done it again.

  “Make some noise for everybody that touched the stage tonight,” says Jay-Z, returning to the Tidal X microphone after an interlude that featured Nicki Minaj performing with a squadron of dancers clad in black hosiery and Beyoncé fronting a rival crew dressed all in pink. “Nicki Minaj, Usher, Nas, Lil Wayne, Rick Ross, Meek Mill, Hit-Boy, Thomas Rhett… Nick Jonas. If I forget one person, it’ll be really fucking bad.”37

  He rattles off a few more names, omitting only Prince, who hasn’t yet taken the stage.

  “Before we go,” he continues, “I want New York City to sing this song so loud they can hear us all the way in Timbuktu… It’s your turn to perform.”

  At that point, with the audience possibly expecting “Little Red Corvette” or “When Doves Cry,” the voice of Frank Sinatra blares out across the arena, suddenly turning an autumn evening in Brooklyn into a summer night at Yankee Stadium.

  “It�
�s up to you, New York, Ne-ew York!” croons the chairman—and then, about ten seconds later, the song stops abruptly. After a moment of near-total silence, the bass booms through Barclays with Jay-Z’s own Big Apple anthem, “Empire State of Mind,” eliciting wild whoops from the crowd. “I like that. I like that!” he screams, before launching into his first verse. “Yeah I’m out that Brooklyn, now I’m down in Tribeca, right next to De Niro, but I’ll be hood forever / I’m the new Sinatra, and since I made it here, I can make it anywhere…”

  It’s clear that the night is about to be over, and indeed, the house lights at Barclays go back on seconds after Jay-Z completes his final chorus. Prince, the night’s biggest attraction—who had publicly declared his allegiance to Tidal months earlier by making it the only service authorized to stream his catalog—is nowhere to be found.

  Aside from the authors of a few barbs on Twitter that night, it seemed that everyone had been blinded by the star power of the acts who did show up. Billboard later described the event as “an all-star gathering that played as eclectic and seamless as a carefully curated playlist,” neglecting to mention the absence of Prince.38 The closest thing to an announcement of Prince’s removal from the lineup seemed to be an email sent to Tidal subscribers at 7:38 p.m. the night of the show—long after most attendees were well on their way to Brooklyn—that touted the concert’s headliners but included no mention of Prince. Tragically, the Purple One passed away several months later; his music remained on Tidal exclusively, tied up in legal wrangling between Jay-Z and the singer’s estate, until a few weeks after Sprint invested.