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Why Is Jay Z Investing $56 Million in a Music Streaming Service Called Tidal?

We're glad you asked, because we have some answers.
February 2, 2015, 6:35pm

Photo via Flickr user Michael Whitney

Unless you’ve been living under a Roc these past few days, you’ve heard the news that Jay-Z has taken another step toward becoming that business, man he always claimed to be.

On Friday, the story broke that Project Panther Bidco, a company that the rapper-entrepreneur indirectly controls, bid $56 million to acquire Aspire AB, a Scandinavian streaming-music conglomerate known for its dual streaming services, Tidal and WiMP. Aspiro’s holdings are mostly in Europe, though it entered the U.S. and U.K. markets with Tidal, an Oslo, Norway-based premium streaming service back in September.

Tidal works like your standard streaming service, with a massive archive of songs available for streaming or offline listening across devices. However, it stands apart with its commitment to high-fidelity audio, which it achieves through lossless compression of audio files. This allows the music to preserve its original layered sound even when compacted into a streamable format. Subscriptions are $19.99 a month.

The Aspiro board still needs to officially approve the bid, but reports indicate that they like the offer and plan to accept.

Right about now you may be wondering: Why is a hip-hop mogul investing ten percent of his net worth in six-month-old streaming company that has yet to state how many subscribers it has? What exactly is Tidal? How is it different from Spotify? Why do I have to pay so much? Why do venture capitalists lie in 85% of their quarterly reports?

You ask the questions, we've got the answers. Or at least some of them…

What is Tidal?
Tidal is music streaming service, much like Spotify, or Google Play, or Rdio, or Amazon Music. It has a comparable song archive to Spotify (25-30 million tracks) coupled with over 75,000 HD music videos and, much like competitor Songza, offers a curated editorial experience for subscribers. (Recent features include an interview with Panda Bear and a thinkpiece on emo revival.) Like the rest of the field, Tidal lets you stream songs or download them for offline listening, and it is available across all devices.

OK. Sounds like I can just keep the service I already have, then?
That all depends on how much you value audio quality. Tidal prides itself on its quality and offers a distinctly premium music experience. It’s unique among U.S. streaming platforms in that it plays lossless, high-fidelity audio across all devices. With lossless compression, songs are streamed at four times the audio bit rate of the competition, so Tidal’s music has all the depth and layers of a CD or vinyl record, with the convenience of a streaming platform.

It’s worth noting that Tidal competitor Deezer Elite also offers HiFi audio, but you must have premium hardware to match. Tidal, meanwhile, is available on everything from $42,000 Dan D’Agostino Monoblock amplifiers to your shitty Droid. However, most reviewers said there was no discernible difference between Tidal and other services with middling hardware, smartphones, earbuds, etc., which means in order to take full advantage of Tidal’s capabilities you’ll want to be using a premium sound system.

Hey, I like to hear my hi-hats fade out as much as the next guy. Where do I sign up?
The catch is the price tag. At $19.99, it's double the cost of Spotify ($9.99) and quadruple that of Pandora ($4.99). And unlike those competitors, Tidal offers no free tier supported by ads. Right now you can get a free seven-day trial, but once that expires it’s $20 a month or nothing at all.

Fuck off.
It’s true. According to CEO Andy Chen, Tidal is hoping to take advantage of the growing market of discerning listeners. No longer is the term “audiophile” limited to your Uncle Greg, with his ass-length hair and goatee and incessant rambling about his Grateful Dead bootlegs recorded directly from the sound board at the Fillmore. More and more people are investing in quality hardware—have you seen what they’re doing with headphones and home stereos these days?—and Chen is hoping they will buy a software subscription to match.

Audiophiles aside, how can they possibly justify charging twice the market rate?
I know, shit is crazy. But if you look at the rest of the streaming market, it’s hard to justify their prices, either. Take Spotify. At $9.99 a month for a subscription, Spotify has yet to turn any sort of profit and continues to piss off rights holders with their minuscule per-stream remittances. Tidal, by offering the customer a premium experience and the rights holder a higher per-stream payment, is hoping to solve the fundamental dissonance at the heart of streaming.

Tidal also wants to appeal to our hearts, asking us to pay slightly more so they can pay artists slightly more. The service has pledged to pay twice as much per stream to rights holders (think Taylor Swift) as Spotify. It’s still a fraction of a penny per stream, but it’s a much bigger fraction.

It also helps that the $20-a-month fee is not likely to budge for some time. While other services consider raising subscription prices and risk alienating subscribers in the process—a la Pandora’s 25% increase on its Pandora One subscriptions back in early 2014, which caused its stock price to wobble and some users to explore other options—Tidal has come out of the gate with a premium price to match the premium service, with no hidden fees or contemplated price increases.

Fine. But Jay Z? What does Hov want with the streaming industry?
Consider his investment. While $56 million sounds like a lot, compared to recent streaming service valuations it’s a drop in the bucket. At most recent check, Spotify is worth $5.7 billion despite its inability to turn a profit. Streaming service Beats Music was an integral part of the deal that saw umbrella company Beats sold to Apple for $3 billion. If Tidal can get anywhere near those numbers, Jay is looking at a massive payday.

Speculation is also rife that Tidal will be used as another channel to promote Jay-Z’s other business interests, from his Roc Nation stable of artists (J. Cole, Calvin Harris, Rihanna), athletes (Kevin Durant, Dez Bryant), and partners like Skull Candy. Jay-Z has shown in the past that he’s willing to cross-promote, and Tidal will provide another opportunity to do just that.

With the trend of average listeners becoming audiophiles, paying for $500 headphones, outlandish stereo systems, and professional DJ equipment shows that the broader market may be poised to rise and meet Tidal at its premium price point. If the trend stagnates, or consumers decide that paying $20 a month for streaming music instead of $10 is outlandish, Jay’s investment could be for nothing.

In a matter of days, Jay-Z will own a streaming music platform. The longer streaming music reigns as our dominant form of music consumption, the more it seems here to stay. Jigga getting in on the ground floor of a service that has all the tools, contracts and curative powers of Tidal is a calculated risk.

But, hey. Jay once lost 92 bricks. You think he gives a fuck about $56 million?

Davis Harper got Illuminati in his mind, soul, and his body. Follow him on Twitter.