#TheWeeklyRoundUp - 26.04.24

ByteDance would rather shut down TikTok in the US than sell if legal challenge against ban fails (Music Business Worldwide)

This week, Joe Biden signed into law a bill that requires TikTok's parent – China-headquartered tech giant ByteDance – to divest the app's business in the US, or face a ban in the market, where it counts around 170 million users.

Citing sources, The Information reported on Thursday (April 25) that TikTok's parent company "is internally exploring scenarios" to sell the app's US business without its powerful recommendation algorithm.

TikTok's algorithm is what powers its "For You feed" – which according to TikTok, "is one of the defining features" of the platform.

As reported by Reuters this afternoon, ByteDance denied The Information's report via a statement published on media platform, Toutiao.

Later in the day on Thursday, Reuters reported that TikTok's parent "would prefer" to shut the app down in the US if it's unable to successfully challenge the legislation in the courts.

Citing its own sources, Reuters reported that the short-form video app "accounts for a small share of ByteDance's total revenues and daily active users".

They added that closing it down in the United States "would have limited impact" on the company's global business and furthermore, that, by shutting it down, it "would not have to give up its core algorithm".

Reuters' sources also said that TikTok shares "the same core algorithms" with other apps owned by ByteDance, such as China-based TikTok sister app Douyin.

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Amid controversy over Spotify's songwriter payments, Daniel Ek cashes out $118.8 million in company shares (Music Business Worldwide)

It's been some week for Daniel Ek.

Yesterday (April 23), Spotify's share price jumped up by over 11% following the company's Q1 results announcement, in which it confirmed its biggest-ever quarterly operating profit.

That share price rise gave Spotify a market cap of approximately USD $60 billion at close of trading on the NYSE yesterday, enough to exceed the market cap value of music's biggest rightsholder, Universal Music Group.

(UMG's market cap on the Amsterdam Euronext stood at approximately USD $53.5 billion at close of yesterday, according to YCharts).

Spotify's share price on the NYSE has settled back down today (April 24), falling by around 7% at the close of trading... but not before Spotify CEO Ek cashed out a small mountain of shares.

According to a filing with the SEC spotted by MBW, Daniel Ek sold 400,000 share units in Spotify on Thursday, with an aggregate market value of USD $118.8 million.

JP Morgan acted as broker for Ek's share sale.

The move is the fourth time in the past 12 months that Ek has cashed in some of his Spotify stock:

• In July 2023, Ek sold 675,000 shares for $100 million in proceeds;

• In October 2023, he sold 400,000 shares for $64.2 million in proceeds;

• And in February this year, Ek sold 250,000 shares for $57.5 million in proceeds

Across these four transactions (today’s included), Ek has cashed out approximately $340.5 million in Spotify shares since last summer.

Ek’s latest $118.8 million cash-out comes as one particular sector of the music business – music publishers – isn’t feeling too enamored with Spotify.

Last week, Spotify confirmed that it had changed the formula by which it pays out mechanical royalties to publishers and songwriters in the United States.

This change sees Spotify re-categorize its Premium subscriptions as “bundles”, because they offer users access to both music and audiobook content.

This is no arbitrary change: by re-categorizing Premium subscriptions as “bundles”, under terms of a 2022 ruling from the US Copyright Royalty Board, Spotify believes it can pay a lower rate of mechanical royalties for the use of music on its platform in the United States.

David Israelite, CEO and President of the National Music Publishers’ Association, responded to news of Spotify’s ‘bundles’ re-categorization with fury last week, commenting: “It appears Spotify has returned to attacking the very songwriters who make its business possible.”

Israelite added: “Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, and potentially unlawful, move that ends our period of relative peace.

“We will not stand for their perversion of the settlement we agreed upon in 2022 and are looking at all options.”

Daniel Ek was the single largest shareholder in Spotify at the close of 2023, with ownership/proxy ownership of 30.86 million ordinary shares in the company, or 15.6% of the total, according to SEC filings.

However, Ek held these shares via his D.G.E Investments vehicle, and amongst the 30.86 million are 16.632 million shares ultimately owned by Tencent Holdings that Ek/D.G.E represents via “irrevocable proxy”.

Discounting these Tencent shares, Ek’s ultimate personal ownership of ordinary shares in SPOT as of December 2023, then, was 14.224 million shares (including warrants), which – in terms of Spotify’s current share price – were cumulatively worth a shade over USD $4 billion at the time of publication of this article.