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Why Apple Might Buy Tidal

The streaming music service Tidal was launched by the Norwegian firm Aspiro in 2014, but most people didn’t hear about it until it was acquired by rapper Jay Z in 2015. With typical flash and flair, Jay Z relaunched Tidal with an ostentatious stage presentation that announced some of the biggest names in music as co-owners, including Beyoncé, Kanye West, Madonna, and Prince. Jay Z’s goal was to turn Tidal into a service that would bring value back to music, promising higher royalty payments to artists and better audio quality.

Perhaps Tidal flew too close to the sun, as its fortunes soon melted. While the service promised superior audio quality, independent tests showed that it was often inferior to Apple Music and Spotify (see “Comparing the Audio Quality of Apple Music, Spotify, and Tidal,” 13 July 2015). The business end hasn’t fared much better:

Tidal is a bit of a train wreck, but now the Wall Street Journal is reporting that Apple is in talks to buy the service, leaving pundits baffled. However, the move seems obvious to me, and by sheer luck, I predicted it the day before it happened.

Put simply, Apple is interested in Tidal for its exclusives. It’s the only place you can stream music by the late Prince. For weeks, it was the only service streaming Kanye West’s latest album, “The Life of Pablo,” and it’s still the only place to stream Beyoncé’s latest album, “Lemonade.” Despite Tidal’s other problems, Jay Z has done a commendable job of attracting and keeping exclusives, which has probably kept Tidal afloat. (It undoubtedly doesn’t hurt that he’s married to Beyoncé.)

But the deeper answer is strategy. Spotify has been a tremendous success, but it is reviled by artists, who complain about its minuscule royalties, which average between $0.006 and $0.0084 per stream. Artist resentment of Spotify is so high that some artists, including the hugely popular Taylor Swift, have pulled their work from the service entirely, or at least delayed releases on Spotify.

Spotify focuses on users, providing decent client apps for just about every Internet-connected device, along with a free, ad-supported tier that’s great for users, but terrible for artists’ bank accounts.

Meanwhile, Apple, like Tidal, has focused on artists from the start. Apple Music’s forerunner, Beats Music, was also a streaming service founded by a rapper (Dr. Dre) that promised higher royalties and better quality (see “FunBITS: What Sets Beats Music Apart,” 16 May 2014). When Apple acquired Beats, it also got music industry veterans like Dr. Dre, industrial rocker Trent Reznor (now also an Apple executive), and music business legend Jimmy Iovine (whose executive title at Apple is simply “Jimmy”).

You may even recall the public back and forth between Taylor Swift and Apple over royalty payments during Apple Music’s free three-month trial. In retrospect, I think this was a preplanned publicity stunt, and a successful one at that, as it encouraged reluctant artists to sign up for Apple Music. My little conspiracy theory is bolstered by the fact that Taylor Swift now stars in an Apple commercial. (And a pretty funny one, at that.)

Apple’s courtship of artists goes beyond mere money to focus on their egos. The artists that joined Apple as part of the Beats acquisition have received fancy titles and positions of honor. And the Beats One radio station is designed to feed artist egos, chock full as it is of artist interviews and vanity radio shows, like “The Pharmacy with Dr. Dre” and “Elton John’s Rocket Hour.” Apple is so dedicated to pleasing artists that it made yet another venture into musical social media with Apple Music Connect. While not as embarrassing as the company’s previous effort, Ping, Connect still hasn’t been a rousing success.

You may think I’m being critical, but on the contrary, I think Apple’s strategy will win out in the long run. Spotify treats artists like commodities, while Apple and Tidal make them feel like rock stars. That makes Tidal an ideal acquisition for Apple, because Apple has the money and technical infrastructure to pull off Tidal’s vision. Jay Z himself would be a killer addition — as he’s fond of saying, “I’m not a businessman, I am a business, man,” and he’s proven that with his small yet powerful list of Tidal exclusives.

Due to Tidal’s problems, it will likely cost far less than the estimated $3 billion Apple paid for Beats Electronics (see “Apple Buys Beats for $3 Billion,” 28 May 2014). Jay Z purchased Tidal for about $56 million, and he probably overpaid. Despite that, Tidal was once valued at $250 million, and even after a rough year, is still estimated to be worth $100 million. If Apple paid even $250 million, it would probably still be a good long-term investment.

So why is the good will of musicians so important to Apple? First, its fortunes are clearly tied to music: the iPod launched Apple into the stratosphere. But Apple’s wooing of artists goes beyond that — the company isn’t courting any one artist, but all of them. Apple wants to be an integral part of culture itself, now and forever. While Beyoncé, Dr. Dre, Jay Z, and Taylor Swift may not have the same stature with future generations of fans, tomorrow’s young stars will want to follow in their footsteps. And if those tracks lead to Apple, that’s where they’ll want to be, too.

Apple’s purchase of Beats and its interest in Tidal isn’t merely about beating Spotify: it’s about making Apple an eternal hub of cool.

But there’s danger in becoming too powerful in too many arenas. There are already whispers that Apple is acting monopolistically, with Senator Elizabeth Warren accusing Apple and other tech giants of using their platforms to “lock out smaller guys and newer guys.” Spotify has joined in, accusing Apple of rejecting its latest iOS update for competitive reasons and receiving a dismissive response from Apple. If Apple does purchase Tidal, the government’s antitrust monitors might start paying closer attention. And that didn’t work out so well for Apple in ebook world (see “Apple Receives Final Judgment in Ebook Price-Fixing Case,” 9 September 2013).

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