After months of murmurs, Square has tied the knot in its acquisition of Jay-Z’s struggling music streaming service TIDAL. The $297 million deal will give Square a “significant majority” stake in the music streaming company, which will still operate independently after the purchase.
Square, which is owned in part by Twitter CEO Jack Dorsey, is a staple of the payment processing ecosystem. The company was founded by Dorsey and current Square CEO Jim McKelvey after McKelvey lost sales due to his inability to accept credit cards at his glass blowing business. Since its founding in 2010, Square has grown to a public valuation of over $100 billion. Over the last five years, $SQ stock has risen 1,850%. In 2019, the company posted its first profit.
The acquisition of TIDAL may perplex some investors. Square is an untraditional fintech company which owes much of its financial success to its novel point-of-sale hardware and digital solutions for companies. However, Square has built a considerable backbone in their consumer business. Cash App, Square’s consumer-facing investing/money transfer/deal-finding app, has over 36 million users as of December 2020. Cash App’s viral advertising and partnerships are partially to thank for its new-found prominence, but their consumer business doesn’t stop there. Square acquired Credit Karma Tax in November 2020 to help millions of Americans file their taxes for free. In March 2021, the company was granted its own bank charter by the Federal Deposit Insurance Corporation (FDIC) to provide business loans and deposit products, among other things.
Square has already proven itself as a robust financial tech company. It is on the warpath to building products which cater to every aspect of the financial system — both for consumers and commercial businesses. Square is already pushing beyond being a traditional fintech and making a break for the lifestyle category. Given Square’s existing brand recognition, buying a salvaged asset like TIDAL might embolden Square to become a general tech company.
What Square’s Acquisition of TIDAL Means
Making TIDAL a success, however, will be an uphill battle. The company is believed to have between one and five million subscribers, which is multiples less than the hundreds of millions of subscribers that streaming monoliths like Spotify ($SPOT) and Apple Music ($AAPL) boast. However, Square has a particular advantage with TIDAL: It is well-liked among artists, in part because the company pays higher royalties than any other streaming service. According to Ditto Music, TIDAL pays $0.01284 per stream on average. This is much higher than Spotify ($0.00437 per stream) and Apple Music ($0.00783 per stream).
As part of the announcement of the acquisition, Jack Dorsey made it clear that Square’s decision to acquire TIDAL was informed by an opportunity to “focus on the most critical needs of artists and growing their fanbases.” Amidst the backdrop of Twitter’s recent decision to add monetization features, Square’s move in the music industry is very adjacent. There is obviously money in being an intermediary, and Dorsey clearly wants to be the middle-man for the growing “creative economy” online. Companies such as Substack and Patreon have dominated this ecosystem for writers, YouTubers and creators. Both companies have proven themselves, which supports the case for Square making an incursion into this space.
Yes, the TIDAL acquisition has a lot to do with Square building rapport and name-recognition among consumers. Square is not buying TIDAL to acquire an audience. This is a streaming company that will be very difficult to salvage in its current state; it will be even harder to build it to the scale and notoriety of Spotify or Apple Music. But that’s not what Square is immediately concerned about. Artists and creatives want to feel empowered and resourced. Apple Music and Spotify have significant shortcomings in those categories in their current implementations. Artists don’t get paid extremely well, feel confident, have a say or stake in these companies and have the ability to truly connect with their fans.
Making TIDAL a success will ultimately be a case of “if you build it, they will come” for Square. However, we’re not primarily talking about building a streaming service for fans; we’re talking about building an ecosystem for creatives. And if Square’s presumption that building a service for artists and creatives ultimately means that fans will follow — then Square could turn the former left-for-dead TIDAL into a competitive threat to Spotify and Apple Music.