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Tidal vs Square | Is Jack Dorsey Playing Jay-Z, or Is Jay-Z Playing Jack Dorsey?

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Here’s what the surprise Square acquisition of Tidal is really about

Rob WalkerRob Walker
Twitter CEO Jack Dorsey testifies remotely during a hearing to discuss reforming Section 230 of the Communications Decency Act with big tech companies on October 28, 2020 in Washington, DC. Photo: Greg Nash/POOL/AFP/Getty Images

Ina deal that basically no one was anticipating, payment service Square announced yesterday that it will acquire a majority stake in Tidal, the music-streaming platform co-owned by Jay-Z, for $297 million in cash and stock. Square CEO Jack Dorsey revealed the acquisition on Twitter — the other company he runs — where he preemptively raised the obvious reaction: “Why would a music streaming company and a financial services company join forces?!”

The thread that followed offered mostly vague PR-speak answers to that question: “New ideas are found at the intersections, and we believe there’s a compelling one between music and the economy.” While that’s probably to be expected at the announcement stage of a distinctly unexpected partnership, the immediate market reaction was tepid, with Square shares dipping about 6.75% on Thursday. But there are a few reasons — perhaps not so lofty as those Dorsey suggested — that this deal isn’t as utterly random as it sounds.

For starters, the motivation for buying Tidal could be as simple as Square making a high-level acqui-hire: Jay-Z, whose rep for street cred and entrepreneurial acumen continues to top itself — luxury giant LVMH just bought into his champagne brand, and he’s a backer of soon-to-IPO Oatly — will join Square’s board. Perhaps this will continue whatever dialogue he and Dorsey may have started while yachting together over the summer. Bottom line: There’s no downside to Jay-Z’s counsel and halo effect.

And it’s plausible that in a world where the business of being a musician really is more of a business, for indie artists as well as mainstream stars, serving as their fintech solution of choice (for merch payment processing and other tools similar to those Square has developed for its business customers) could be worth something over time for Tidal. This hardly has to be a game-changing, risk-it-all gambit to pay off: The acquisition price is a sliver of Square’s $100 billion-plus valuation, and even the company’s official announcement said it expected no material impact on revenue or profits this year.

If that sounds more like a “why not?” than a “hell yeah!,” well, maybe that’s the point. And that’s even more true for Tidal, and especially Jay-Z. One of Tidal’s early selling points, along with superior sound quality, was its artist-first attitude, paying a significantly higher royalty than Spotify and Apple Music in hopes of attracting exclusive content. But it has never come close to challenging those rivals — by 2018, it reportedly had around 3 million subscribers, and has basically been mum on that subject ever since. (Spotify has more than 155 million paid subscribers; Apple Music has more than 60 million.) Tidal does not disclose financials, but Billboard report says that although the company’s revenue grew 13% in 2019, its losses grew around 52% — from $36 million to $55 million.

Perhaps this deal bolsters Tidal’s original mission, or maybe it suggests a new game plan in the offing. But either way, the acquisition price is a nice improvement over the $56 million that Jay-Z and a coalition of artists paid for Tidal just over five years ago.

In other words, maybe Jay-Z didn’t succeed in making Tidal into a dominant new streaming-music player, but with this deal, you certainly can’t call the enterprise a failure: It’s just been co-signed by one of the most successful entrepreneurs alive, and plugged into a $100 billion fintech giant that now has a board seat with Jay-Z’s name on it. Maybe Dorsey didn’t acqui-hire Jay-Z; maybe it’s the other way around.

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