Why did Jack Dorsey purchase Jay-Z’s failed music service?

A speculative explainer of the Sq./Tidal deal that features cryptokitties and Grimes.

Right here is the straight information headline: Sq., the monetary providers firm run by Twitter co-founder and CEO Jack Dorsey, is shopping for Tidal, the streaming music service based by Jay-Z.

And right here is the query you, a traditional particular person, could have about this deal: WTF?

The reply, relying on the way you’re inclined to take a look at offers between billionaires, may very well be intriguing, foolish, or silly. Perhaps the entire above.

Sq. is paying $297 million in money and inventory for a “important majority” of Tidal. Dorsey’s Twitter thread asserting the deal (after all) is obscure about what Sq. intends to do with Tidal, however mentions issues like “fully new listening experiences” and “new complementary income streams.”

It doesn’t take a lot creativeness to provide you with Sq. + Tidal rollouts sooner or later: A Sq.-enabled approach for artists to promote T-shirts on tour, and even after they’re not on tour, as an illustration.

Extra intriguingly, given Dorsey’s love of All Issues Blockchain, and the present mania over NFTs, it gained’t be stunning to see Sq. + Tidal work on their very own NFT scheme. NFTs (non-fungible tokens) are blockchain-enabled digital items of … something that buyers and speculators and collectors are hoovering up at a loopy price. Even when none of this is sensible to you, you’ll have heard about folks paying actual cash — some huge cash — for digital ephemera like cartoon cat GIFs or animated buying and selling playing cards of NBA gamers dunking or blocking. It’s a factor, for now.

So you’ll be able to image the Jay-Zs of the world promoting songs, or snippets of songs, or the digital model of a lyric scribbled on a serviette, as NFTs, in offers that allow Sq. and the artist get a part of the deal.

In the event that they get it out quick sufficient — whereas NFT mania booms — it’s simple to think about many extra headlines like these, besides you’ll substitute “Grimes” with “Beyonce” or whomever:

So long as you’re okay with the purely speculative hype round these sorts of gross sales and tales — and the understanding that some buyers, together with individuals who don’t absolutely perceive what they’re doing, are going to make some huge cash, and a few will get burned badly (see: GameStop, and in addition Cryptokitties, an early NFT gambit/gimmick that was sort of sizzling in 2018 after which cooled off however could also be sizzling once more) — then this all appears … okay? Perhaps … good?

It actually permits musicians — well-known ones in addition to ones you’ve by no means heard of — an opportunity to earn money in an trade that at the moment presents them few choices: Streaming music typically solely pays out for enormously profitable acts, and touring is tough work in the perfect of instances. It’s additionally at the moment not obtainable in any respect, as a result of pandemic. Essentially the most optimistic model of the NFT story is that it permits artists (or anybody) to seize extra of the worth of the stuff they create than promoting it by way of middlemen, like report labels or streaming providers.

Alternatively: Even in case you assume the concept of Jay-Z promoting five-second beatbox movies for hundreds of thousands of {dollars} and high-fiving Jack Dorsey is fairly superior, none of this requires a $300 million deal to purchase Jay-Z’s firm. If Sq. needs to create new methods to assist musicians promote actual items and digital items, it might simply try this.

As a substitute, Sq. is paying $300 million for a failed music service that doesn’t assist it accomplish any of these objectives.

A fast recap of the Tidal story: In 2015, Jay-Z purchased an obscure Norwegian streaming service for $56 million, rebranded it, and launched it as an “artist-owned” streaming service. The thought was that Jay-Z had recruited different artists — like his spouse Beyonce in addition to Madonna, Rihanna, Daft Punk, and Kanye West — as partial Tidal homeowners, and Tidal would distinguish itself from opponents like Spotify by providing unique music on the service.

However usually, the artists concerned in Tidal didn’t personal their very own music — massive music labels did — in order that they couldn’t make their music unique on Tidal. And even those who did have that energy, like Jay-Z, finally relented and put their stuff on aggressive providers as a result of that’s the place all of the listeners have been.

For some time, it appeared like a giant tech firm, seemingly Samsung, would possibly pay loads to personal Tidal, even when it wasn’t working. Apple had beforehand purchased Beats for $three billion as a strategy to vault itself into the streaming music enterprise, so why not? However that deal by no means materialized, and in 2017, Dash purchased a 3rd of Tidal and valued the corporate at $600 million.

Lower to Thursday’s deal, which values Tidal at one thing north of $300 million in an admission that Tidal hasn’t labored as a music service. And the factor concerning the concepts floating across the web at this very second, about promoting Rhianna shirts or songs on Sq. are positive — however not associated to Tidal. If Rhianna needs to do these offers, she will be able to simply do these offers. Tidal doesn’t personal any of her rights to any of that.

So, what you’re actually left with here’s a deal that appears like a approach for Jack Dorsey to maneuver cash from his publicly traded firm to an organization owned by a man he likes to hang around with.

Which wouldn’t be the primary time somebody in a boring enterprise has spent some huge cash to sidle as much as an leisure enterprise. In actual fact, that dynamic is a core function for Hollywood.

And whereas $300 million is loads to you, a traditional particular person, it isn’t a lot for Sq.: The corporate has $three billion in money readily available and sure paid for a lot of the take care of its inventory, which, like many tech shares, has been on a loopy tear and at the moment values the corporate at greater than $100 billion.

So the true Sq. argument will probably be: Why not? If associating ourselves if Jay-Z, who we’ve additionally placed on our board of administrators, helps us persuade folks to purchase and promote stuff on Sq. and discuss creating new paradigms for artwork and possession, then nice. And if not, it nonetheless sounds fairly cool.