exhibit of dos · 2020-05-27 · in the united states district court southern district of ne\ü...

$: EXHIBIT OF DOS · 2020-05-27 · IN THE UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NE\ü YORK MELISSA FERRICK, et aL, No. 1 : l6-cv-08412 (AJN) Plaintift vs SPOTIFY USA INC.,$
IN THE UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NE\ü YORK

MELISSA FERRICK, et aL, No. 1 : l6-cv-08412 (AJN)

Plaintift

vs

SPOTIFY USA INC., etal.,

Defendants

EXHIBIT 8.1 TO THE DECLARATION OF JOAO DOS SANTOSIN SUPPORT OF PLAINTIFFS' MOTION FOR FINAL APPROVAL

VOLUME 2 ol7

CORRECTED

Case 1:16-cv-08412-AJN Document 288-2 Filed 11/13/17 Page 1 of 82

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Exhibit B-1"Spotify: A Global Streaming Leader"

"Spotify Showing Momentum Ahead of Possible Listing"o'Exclusive Report: Spotify Artist Payments Are Declining in 2017, Data Shows"

"Spotify Research Report: The Rock Star of Streaming Services"

TuneCore Blog: How Vy'e're Getting Your Mechanicals From Streams"

"SpotiSr Hit V/ith $150 Million Class Action Over Unpaid Royalties"

"Publishers Said to Be Missing as Much as 25 Percent of Streaming Royalties"

"Independent labels claimed 35%o market share in the US last year ... by ownership"

"Understanding and Measuring the Illiquidity Risk Premium"ooPandora Media Corp - Spotify Sub Leap Evidence of Expanding Market For On-Demand"

'oUS' Music Streaming Royalties Explained"

Consolidated Financial Statements as of December 31,2016 and Independent Auditor'sReporto'Exclusive Report: Spotify Artist Payments Are Declining in 2017, Data Shows"

"Independent labels have a 37.6% global market share, says new report"

'oAn International Legal Symposium on the V/orld of Music, Film, Television andSport: Enterprise Valuation"ooA Primer for Valuation of Music Catalogs"

"Music Publishing's Steady Cash Lures Investors"

"Spotify, Valued at $13 Billion, to Launch Direct Listing onNYSE: Sources"

'olnside Spotify's Financials: Is There a Path to Profitability Or an IPO?"

"Global Music Investing 2.0: More Options: More Subs"

"Spotify's Product Roars Ahead Amid Business Model Challenges"

'oStreaming Music Topic Primer"

'oMechanical and Performance Royalties: What's the Difference?"

"64 Amaxing Spotify Statistics and Facts (October 2017)"Apple Music Saw Over 40M Users On Mobile Last Month, Leading Spotify by 10M"

"Big Publishers Feeling Cheated After Spotify's Small Publisher Deal"

"Spotifu Now Processes Nearly lBN Streams Every Day"

"Spotify's Losses Grow Despite Revenue Doubling in20l2""The Spotify Settlement with NMPA: What it Means for Music Publishers"

"Spotify Music-Streaming Service Launches in U.S."

"Spotify vs. Apple Music: Which Service is the Streaming King?"

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Excluslve Report: Spotúy Arüst Payments Are Declrmng In 20L7, Data Shows

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Page I of 19

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[xclusive Report Spotify Artirt Paymentr Arc 0cclining ln 2017, llata Show¡

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As Spotily'¡ rouonuo g00¡ up, Nrti¡t por-¡trcrm ¡nd rouanuo g¡Iouts arc going rry, way dotrn. Ând h¡ro'¡ th¡ datr to proro it,

Twoyearsago,inafundinground, lnvestorsvaluedSpotiñ/at$Sbillion. lnthelatestround, lnvestorspushedthatnumberabove$l3billion.Sounds like some serlous growth, Yet lnvestors can't ignore one glaring fact: after ten years, the company has yet to turn a profit.

Butmayberhafsjustanotherdetail, Now,analystsexpectthecompanytofinallygopubliconWall Streetwithinayear, Andthedealstomakethat a reality are finally startlng to happen.

Recently, Spotifo struck new long.term licensing deals wlth both Universal Music Group and independent music rep Merlln. The/re also rumored

to be closing a similar deal with Warner Music Group, Ahead of their long-awalted listing on Wall Street, Spotiñ/ seems to have lt made.

Yot, rhy rrc rrtirlr nceiring los monry ü Spolify gror¡, nol morc?

Top-linerevenuesðtSpotifyaresurglngahead,thankstoåfloodofnewsubscribers, Aboostinmonthlypremiumpaymentsandincreasedadvertising means a lot more revenue, That part ls simple. Yet strångely, Spotirys per-stream royalties across both recordlngs and publishlng

appeartobesinking,äccordingtodatasharedwlthDMN. Thatincludesper-stre¿¡mpaymentstolabels(includingindielabelsandself-admlnlstered artists), plus mechanlcal royalty payments to publishers.

htþs://www.digitalmusicnews,com/2 017 I 05 I I ílspotiff 'audiam-low-rates/ rUr0l20t7


bxcluslve Keport: Spotlry Aftlst Payments Are lJecllnmg ln '¿ul'l , Data shows Page'2 oI'19

Entrepreneur Elevator Pitch ^Ep7: lvlore Secure

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Entrepreneur Elevator PitchEp6: Can a Saliva Test Tell

You whether He's the One?

Entrepreneur Elevator P¡tchEp5:'People Suck at Judging

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lVlusicians and labels on the service have felt the crunch. But why ls thls happening? Lefs rewlnd a blt,

Two years ågo, a report f¿vþluredjhlfüffi108,år$hr:ü,(cml?ü15.¿0.Stbeallld;i0.tçtêttlvs:$rgûmiflkdqJlcll0"1¡ft$ by Audlam found that as

Spotiñ/'srevenueswentup,artistsandlabel royaltieswentdown, AudiamisareproductlonrlghtsorganizationheadedbyJeff Prlce,andrecentlypurchasedbyCanadianrlghtsgroupSOCAN. ThecompanyisbasingalotofitsdataonpayoutsreportedunderSectionll5of USCopyrlghtLaw,

Audiam stated then,

phyricr:'For crory ¡ction, lto¡c i¡ ¡n ¡qürl ând 0p¡0¡¡l¡ r!rot'ron.'

"ln thi¡ æ¡0, a¡ mor¡ ¡nonoy i¡ mrd¡ lrom thc mr¡ic, ¡n¡¡io or¡¡lo¡¡ anú copyrigtt holil¡n ¡r¡ mrkin¡ hs."

So,twoyearslater,withSpotlfofinallyreportlnggrowingrevenue,havethesenumberschanged? Notevenclose, Toputitbluntly,Spotlffhasfound a way to keep more ofthe revenue they earn (per stream) ln their pockets.

Spotlñ/ seems to be counterlng this accusatlon by pointing to lncreased overall royalty påyments, But a closer look at the math shows that Spotifymay be paying more - but is also taking a lot more. All of which means that Spotify (and its shareholders, which lnclude maJor labels) are cuttlngcosts on per-stream payouts.

Audiam has now lssued a new report, and shared it excluslvely wlth Digital Muslc News. Agaln, Audiam ls sourcing a lot of its data from publicly

avållable stats. 'The numbers I am providing are not Audiam's numbers," remarked Audiam founderJeff Price. 'They are numbers reported by

Spotlry as required under Sec 1 15 of US copyright law."

Essent¡ally, the latest repon updates the stream¡ng servlceb per stream numbers ending February,2017, And they reached the same conclusion:

as SpotlS's value and revenues go up, artists and publishers are making less.

i!scl¡anlc¡l royrlly ratos rro conlinuing to doclinr in 20t7, ¡t l¡¡¡t lor Spolily'¡ prrmlum (io, ¡ub¡crl[tlon) ¡hoan¡,

Lefsstartw¡thSpoti6/sad-supportedtler. lnFebruary20lT,asinglead-supportedstreamgenerated$0.00014123onthestreamingservice. thismeansanartlstwouldearn$l00inmechanical royaltlesafter703,581 streðms. Althoughthlsnumberrepresentsal.l%¡ncreasefromJanuary,inDecember 201 6, the number was at $0.00022288.

For the premlum tier during the same month, Spotif, pald out $0,00066481 per stream in mechanlcals. ln this scenarlo, artists would earn $f 00

after 150,419 streams. Thls number is up 5.2% fromJanuary. Sounds great, until you see lhe year-over-year trend.

https://www.digitalmusicnews.com/20l7l05ll6lspotiff-audiam-low-rates/ rvr0l20t7


Exclusive Report: Spotiff Artist Payments Are Declining In 2017, Data Shows Page 3 of 19

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Another key thing to notlce is the followlng discrepancles. ln December 2016, to earn $100 from ad-supported streams, a song would need be

played 44ß,672tlmes. Spotlry pad out $0.00022288. Yet Jusr one month later, the number dropped down to $0,00013508. To eårn $100 from ad-

supporter streams, a song would have to be played 740,302 times. Note that this dldn't apply to premlum streams.

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htþs://www.digitalmusicnews.com/2 A 17 ß5 / I ílspotiff -audiam-low-rates/ tt/t0120t7


Exclusive Report: Spotift Artist Payments Are Declining In 2017,Data Shows Page 4 of 19

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https://www.digitalmusicnews.com/2017105116/spotifr-audiam-low-rates/ nlrÙDarT


Exclusive Report: Spotiff Artist Payments Are Declining In 2017, Data Shows

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Page 5 of 19

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According to hlm, Spotlry pays out over 699ó of its revenues, So, why the criminally low payouts? Blame the music labels, Calling out Audiam's

founder and CEOJeff Price, Lefsetz explalns,

'lou're being screwed by the lobel. And Spotify conî, soy this, because the lobels ore the¡r portners."

But Lefsetz seems to be lgnoring the reallty that most of the recordlngs on Spotlfo come from self-distrlbuted artists. These artlsts aren't slgned to

alabel,theyorethelabel.ButalsoseeminglydlsregardlngAudiam,sprgviou{ig.ruJhlhhedntÆ[þprrfhfJp://blÕg,au@lnß.r.å'"çllv-€rÉtLç"4mln&d¿f¡":¿,:.-?å.h.$Ít"1, Lefsetz atta cked,

"What oboutleff Price, iß old fired founder, bullsh-ting that SpotìÍy ¡s not poying on so mony trocks?

Thot's a registry probtem, thatß not Spotify seeklng to rip-off rights holders, thaß the result of on

system wherein we donT know who wrote what and who owns what, Does ¡t need to be cleored up?

Yes."

However, Lefsetz, seemlngly Spotlfu's apologist, can't defend the followlng stats, no matter how hard he tries, Take a look at the numbers:

2016 Total Gross Revenue; Sllghtly over $1 .1 blllionAverage streaml ng rate: $0.0046524Total plays: Over 162 bllllonRoyalty pool amount: $75,4 millionPRo fees: Almost $72 mllllon

Hh¡t o¡n ryo d¡duo¡ lrom lh¡ ¡mou¡t¡? lhr ¡¡m¡ oonolu¡ion th¡t ludl¡m c¡mo lo in 2fll¡1, A¡ Sp¡tily'¡ top linr Gros Roronlo insrc!¡!¡, tho P¡r ¡tro¡m m¡ch¡niorl r¡to

conlilüß to dþp.

As Spotiry continues to prepare for their long-awaited lPO, theres no clear explanation as to why they cont¡nue to pay out art¡sts such little

rates. And despite Lefsetz' best attempts to protect Spotlry (calllngjeff Price out of touch), his final defense of the company ultimately sounds very

hollow.

,,!ut you't¡ got ¡n hi¡loric¡t d¡¡l rith ¡ þb¡l th¡t F¡y¡ ¡n lnorodiùly lor D¡r6ntrgc, youtr got ¡ rory low rofrlty r¡to, ir thi¡ ¡ probl¡n? lb¡olut¡ly. 8UI I lt ll0l tP0llfY'S

ilutrOr, ls it?

lnoge by official Leweb Photos (CC by 2.0)

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htþs ://www. digitalmusicnews.com/20 17 I 05 I I 6/spotiff -audiam-low-rates/ tUt0l20t7


Exclusive Report: Spotiff Artist Payments Are Declining In 2017,Data Shows

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https//www.digitalmusicnews.com/2 017 I 05 I I 6lspotifr -audiamJow-rates/ nn0/20r7


Exclusrve Keport: Spotrty A¡ttst Payments Are Decltning In 2U17, Data Shows Page 7 of 19

https://www.digitalmusicnews.com/201,7105/l6lspotifr-audiamJow-rates/ tUt0l20l7


Hxclusive Report: Spotity Artist Payments Are Declining ln Z|JL7, Data Shows Page I ot'19

https://www.digitalmusicnews.com/20l7l05ll6lspotifu-audiam-low-rates/ nl10l20r7


Exclusrve Report: Spotity Artist Payments Are Declining ln 2UI7, Data Shows

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TrexMay16,2017 (https://www,digitalmusfcnews,coml2olTl0Sll 6/spotify-åudlåm-low-rates/#comment-288757)

Stop glving your work away

REPTY (HTTPST//WWW.DIGITALMUSICNEWS,COMI20lTt05116/SPOTIFY.AUDIAM.LOw-RATES/?RE PLYTOCO M=288757#RE S PO N D )

lmaoMay16,2017 (https://www.dlgitalmus¡cnews,com/2017/05/'l 6/spotify-audlam-low-rates/#comment-288759)

who the hell cares about mechanical royalties, trash article.,,. and fuck your mechanical royalties nobody cares about.., LAME

REPTY (HTTPS://WWW,DIGITALMUSICNEWS.COM/2017 l0sll6lSPOTlFY-AUDIAM.LOW.RATES/?REPTYTOCOM=288759#RESPON D)

Page 9 of 19

htþs ://www. digitalmusicnews. com/2 0 17 I 05 I I 6 lspotiff -audiam-low-rates/ lUt0l20t7


Exclusive Report: Spotity Artist Payments Are Declining ln 2017, Data Shows Page l0 of 19

Will BuckleyMay 18,2017 (hrtps://www.digitalmusicnews.coml20lTlOSl16/spotify-üudlam-low-rates/fcommënt-288888)

Whafs your point? Artlsts shouldn't get paid or the compensation ls so LAM E, who cares,

REPLY (HTTPS://WWW.DIcITALMUSICNEWS.COM/2017l05l16lSPOTlFY-AUDIAM.LOW-RATES/?REP[YTOCO M=288888#RES PO N D )

AnonymousMay 16, 2017 (httpsi//www.digitalmuslcnews,coml2OlTl0Sl l6/spotify-audiam-low-rates/#comment-288761)

The royalty rate is determined by taking the royalty pool for a given month, and dlvlding lt by the number of plays durlng the same month'When the royalty rate decreases, thls slmply means that the number of plays is increåslng at a greater rate than the amount of revenue, People

wlth Spot¡ry subscrlptions are spending more hours each month listening to Spotiry than they used to, When that happens, the per play rategoes down, lt doesn't mean songwriters are earning less money overall though,

: REpLy (HTTpS://WWW.DtGtTAtMUStCNEWS.COMt2OlT103/16/5POTIFY-AUD¡AM-LOW-RATE5/?REPTYTOCOM=288761 #RESPON D)

SteamerMay 16,2017 (https://www.dig¡talmusicnews.com/2017/05/16/spotlfy-audlam-low-rates/#comment-2887771

lsn't this the most obv¡ous answer?

Spotlfo has done a lot to make users listen more - endless playlists, auto-play muslc when your llsts ends, etc - so lf the average # of tracks

llstened to per user goes up the per stream wlll go down.

REPLY (HTTPS://WWW.DIcITALMUSICNEwS.COMI2OITl0Sll615POTlFY-AUDIAM-LOW'RATES/?R EP LYÎO CO M.2a8777#RÊ,SPO N D)

5u bsc ri be rMôy 17,2017 (httpsi//www,d¡gltalrnuslcñews.com/2017l}st16lspalify-audiam-low-rates/#comment-2887931

This is why Sporify NEEDS to sw¡tch to a "subscrlber Share" method of payouts. lf I pay $10, then $3 goes to Spotifo, and the other $7

shoulcl go to the artlsts I llsten to in that month, Period, Thafs NOT how lt works today, and thafs why payouts are so bad. Bots are

gaming the system, and this ls the only way to fix it.

REPLY (HTTPS¡//WWW.DlclTALMuSlcNEWs.cOMl20lTt05/16/SPOTIFY-AUDIAM-LOW-RATES/?RE PLYTO COM=288793#RESPON D)

TomMây't 8, 2017 (https://www.dl8italmuslcnews.com/2017l05l16lspotify-audlam-low-rates/#comment-288909)

It mlght seem so but bear in mind spotlfies seryice does not make people l¡sten to more music as much as lt does dlfferent b/pes. lf they

are growlng in payouts to art¡sts lt is more llkely because they have taken the market from another more tradltional source wlth set

royalty rates, radlo belng an obvlous example.

https://www.digitalmusicnews.com/2017105/l6lspotifr-audiam-low-rates/ rUt0l20r7


Exclusive Report: Spotiff Artist Payrnents Are Declining In 2017, Data Shows Page ll of 19

REPLY (HTTPS://WWW.DIGITALMUSICNEWS.COMI2OlTl05/16/SPOTIFY.AUDIAM.tOW'RATES/?REPLYTOCO M=288909#RES PON D)

AnonymousMay17,2A17 {https://www.dlgitðlmusicnews,corî12017105l16/spotlfy-âudlam-low-rates/#comment-288797)

Anonymous is correct but nelther DMN or Audiam care about understandlng how Spotlffs economlcs work. Theyre just looking foråttentlon,

REPLY (HTTP5://www.D¡GITALMUSICNEWS.COM/2017/05/1615POTIFY'AUDIAM-LOW'RATES/?REP LYTOCO M-288797#RES PO N D)

Will BuckleyMay 18,2017 (httpsi//www.dlgltalmuslcnews,coml2OlTlOSll6lspotify-audiam-low-rates/#comment'288937)

people don't listen muslc thls way. they turn lt on and forget about. lt fills â void that this tech obsessed world ¡s so used to'

, n¡ptv (HTTPS://WWw.DIGITALMUS¡CNEWS.COMt2Ùl7 IO3lf 6/5POTIFY'AUDIAM'LOw'RATES/?: REPLYTOCOM=288937#RESPOND)

Sad For YouMay 16, 2017 (http s://www. d ig lta lmu slcnew s.comt2O17 tOSt 1 6/s pot¡fy-aud la m- lo w-rates/#comm ent-28 8773)

Cmon guys leave paul alone, Spottfy ts about to go public and if ifs a success his tablold blog won't be able to survive on 'Why ls Apple Muslc

FalltngT'storles. Too bad labels declde royalty payouts, from what Spotlfy pays the l¡bel. Sad llttle artlcle. #getthgdesperate

REPLY (HTTPS!//Wt TW.DIGITALMUSICNEwS.COì'Lt2017t05/16/5POTIFY'AUDIAM'LOW'RArEs/?RE PLYTOCOM =288773#RESPO N D)

May 17,2017 (https://www.digitalmus¡cnews.com/2017/05/16/spotify-åudlam-low-rätes/#comment-288804)

Always fascinated by the endless, loglcal explanatlons we receive on how Spotlff payouts work, l've not heard one, slmple, elegant explanâtlon

since Spotiõ/ has launched, All of whlch works to the ðdvantage of Spotlfy and its owners.

Call me ant¡-Spotlfo, call me whatever, l'm Just descrlblng a buslness model that may not be very artist-friendly, by design.

REPLY (HTTPS://WWW.D¡G¡TALMUSICNEWS.COM/2017105t161SPOTIFY'AUDIAM-LOW-RATES/?RE PLYTOCO M =288804#RES PON D)

You people are idiots.

https ://www.digitalmusicnews.com/2 0 17 I 05 I I 6 lspotiff -audiam-lowrates/ tllt0l20t7


Exclusive Report: Spotiff Artist Payments Are Declining In 2017, Data Shows Page 12 of 19

May 17,2017 {https://www.digitâlmuslcnews.com/20l7lOSll6lspollfy-audiam-low-rales/#comment-288806}

Why the fuck per stream rate mðtters? spotiry ls paylng MORE money to artlsts as it grows.

Would you rather have a per stream payout of 7 usd and have people llsten to only 1 song â month?

You really make no fucking sense Paul.All that matters is the totål amount that is being payed, and that is GROWING year by year, not decllnlng,

REPLY (FITTPS://WWW.DIGIIALMUSICNEWS.COMI20lTl0S/16lSPOTIFY-AUDIAM.LOW-RATES/?REPLYTOCOM=288806#RESPON D)

ls*"LmrMrhff ¿p"re É nj"k-sl f /ÌMay 18,2017 (https://www.dlgitâlmuslcnews.com/2017/05/16/spotlfy-audiam-low-rates/#cornment-288893)

Buç are anls¡s actually being paid more? Thafs an ðssumptlon worth challenging.

I REpty (HTTpS://WWW.DtctTAtMUSrCNEWS.COMtz0lTl0S/16/SPOTTFY-AUDIAM-LOW-RATES/?, REPLYTOCOM=288893#RESPOND)

You people are idlotsMay 19,2017 (https://www.dlgitalmuslcnews.com/2017l05l16lspotify-audiam-low-rates/#comment-288947)

lf the money doesnt get to artists the blame is on the labels, Spotifo pays more revenue every year to the rightholders.

REPLY (HTTPS://www.DlGlTALMUSlCNEWS.COMt20lT105/16/5POTIFY-AUDIAM-LOw-RATES/?RE PLYTOCO M=288947#RESPOND)

Me2May 22,2017 (https://www.digitalmusicnews.com/2017l0Sl16lspotlty-audiam-low-rates/#comrnent-289109)

" Yet strangely, Spot¡fy's per-stream royalties across both recordings and publishing appeâr to be sinking, accordlng to data sharedwith DMN. That lncludes per-stream payments to labels (lncludlng indie labels and self-adminlstered artlsts), plus mechanical

royalty payments to publishers."

So tired of the unlnformed else shilling posts muddying the waters on thls. Glve lt up,

Jeff PriceMay 26,2017 (https://www.digltalmuslcnews.com/2017l05l16lspotify-audiam-low-rates/#comment-289388)

Rights holders are belng paid less âs Spotirys value increases.,

For example, ln Jan, 2014 10,000 streams = $95 for the recordlng and composltion.

Two years later, in Jan, 2016 10,000 streams = $74 for the recording and composition.

REPLY (HTTPS://WWW.DIcITALMUSICNEWS.COM/2017l05l16lSPOTlFY-AUDIAM'LOW'RATES/?REP LYTO CO M=289388#RE SPO N O )

https://www.digitalmusicnews.com/2 017 I 05 I I 6lspotiff -audiam-lowrates/ nll0l20r7


Exclusrve Keport: Spotrty Artrst Payments Are Declining ln 2tJL7, Data Shows Page 13 of'19

TomMay 18,2017 (https://www.dlgitalmuslcnews.com/2017/05/16/spotlfy-audiam-low-rates/#comment-288907)

People dont listen to more muslc because of playllsts etc. just a more dlverse music perhaps but peeps only have a certaln amount oftime in the day to dedicate to music consumption, so in this sense it ¡s a zero sum game - lf spotlfy ls grow¡ng in plays änd subscibers ¡t ¡sbecause they have taken the mârket share from someone else

REPLY (HTTPS://WWW.DIGITALMUSICNEWS.COì'1i12017 lïslf 6/SPOTIFY.AUDIAM-LOW-RATES/?REP LYTOCO M=288907#RESPO N D )

some random guyMay 17,2017 (https://www.digltalmusicnews.com/20l7lOSl16lspotl(y-audlam-low-rates/#comment-288808)

I don't know lf spotify has a better-of revenue vs. per subscrlber calculatlon method for their freemium tier on your given dlstrlbutor. but thatcould be 1 reason.Another reason could be that while revenue has increased, the market share of the label / distrlbutor ofyour content is in decl¡ne - reason 2

The per play rate ls determined by overall use, so more usage could also erode the per-play payout (all other things being equal)There are a lot of reasons for thls phenomenon,.,

I am skeptlcal that they are not actually losing money wlth thelr free tler.

REPLY (ll11PS://WWW.DIGITAtMUSICNEWS.COMt20l7105/16/SPOTIFY-AUDIAM-tOW-RATES/?RE P LYTO CO M=288808#RESPO ND )

Zach Weinberg (Tuff Gong Worldwide)May 18,2017 (https://www.digltalmusicnews.com/2017l05l16lspotily-audlam-low-rates/#comment-288895)

Something's not right here, Somewhere along the way, these numbers are wrong, As you reponed both above in the summary, and in thisðrricte (hftn:1/ Lmllip.n*pøifurç.r*¡"rrlr:f0y.û-lt¡.esl

stream is a little less than half of a penny, ln Audlum's assessment though, the payout is 1 % of a penny and 6% of a penny bewveen ad-

supported and premlum streâms, respectively? Thafs a big gap. Now, if ifs closer to half of a penny, whlch I assume it ls, then the payout pool

on 162 billion streams is $753,7 milllon, not $75.4 million. And 753.711100 ($1,1 blllion reported revenue) = .685, or 68.5% of revenue golng outto rights holders. Thafs pretty close to the 69% that Lefsetz is reportlng.

So, I'm not sure who's rlght and who's wrong and where this disparity happened, but recheck your math and get back to us..,.

REPTY (HTTPS://WWW.DIGITALMUSICNEwS,COM/20f 7t05t16tSPOTlFY-AUDIAM-tOW.RATES/?REPLYTOCOM=288895#RESPOND)

wrongMay 18, 2017 (https://www.digitalmusicnews,com/2017/05/16/spotify-audi¿m-low-rates/#comment-'¿889221

They aren't interested ln belng right, they are interested ln bashing Spotlfy and streamirlg muslc, lf they reâlly wänted to call soûìeone outwhy not make a case for all the stup¡d deals the labels are allowed to get away with? Labels as inslstlng on gettin8 the same piece of the pie

as when lt was vlnyl and big A&R budgets wh¡ch means the årtlst and distrlbutor get screwed wlth smaller pieces.

https://www.digitalmusicnews.com/2017l05ll6lspotiff-audiam-1ow-rates/ nll0l20t7


Exclusive Report: Spotity Artist Payrnents Are Declining In 2rJl7, Data Shows Page 14 of l9

REPLY (HTTPS://wWW,OIGITALMUSICNEWS.cOM/20f 7105116/SPOTIFY-AUDIAM-LOW-RATE5/?REP tYTO C OM=288922#RE S P O N D)

Jeff PriceMay76,ZO17 (https://www,digltalmuslcnews.com/2017/05/16/spotlfy-audiam-low-rates/#comment-289387)

there are two sets of royalties for every stream.. One for the sound recording and a second separate one for the composltlon. For example:Sony hired Whltney Houston to sing "l Will Always Love You". Sony owns the recording of the song, However, Dolly Parton wrote the lyrlc andthe melody (called the composltlon),

When the recording streams on Spoti6/, one royalty and payment goes to Sony and the second separate royâlty goes to Ðolly Parton,Dlfferent rates. different payments.

REPLY (HTTPS://WwW.DlGlTALMuSlCNEwS.COMl20lTt03/16/SPOT¡FY-AUDIAM-tOW-RATES/?RE PLYTOCOM=289387#RES PO N D )

Llnda hornJune 3,2017 (https://www.dfgÌtðlmusicnews.coml2117l05l16lspotlfy-ðudiam-low-rates/#comment-289644)

As a flnancial person I like your analysis.

REPfY (HTTPS://WwW.DlGlTAtMUSlCNEWS,COMl20lTt05/16/SPOTIFY-AUDIAM-LOw-RATES/?RE PLYTOCO M=289644fRESPON D)

ToriAugust 6,2017 (https://www.digitalmusicnews.com/20l7lOSl16lspotify"¿udiam-low-rates/#comment-293112)

lfs way worse than you've even notlced so far, Nearly all the numbers l've seen quoted across the board in these "debates" are lncorrect,Half the numbers quoted are songwrlter royalties with the authors representing them as artist royaltles. The other half are the result ofpeople dividing their total p¿yment by total streams (often incorrectly or wlth declmals ln the wrong place), then presenting them as fåctwlth no mentlon of the enormous difference between rates ¡n varlous countries, payment tiers, etc. Even offlcial lndustry bloggers seem tonot understand how to read a statement or use a calculator.

Spotlñ/ has actuðlly pald HIcHER rates per pald stream ln many countrles than Tldal, Google, or Apple, for instance, yet the rampant skewlng

of stats mlsrepresents th¡s reällty. Overall rates have much more to do wlth free/paid mix of listeners and country of or¡g¡n, but all of thoseare laid out exactly llne by llne for anyone to read lf they just bother to do so.

l've yet to have a single conversatlon wlth anyone online who appears to even understand the difference between their line-itemdownloadable pdf flnal sales repoft, and their aggregate sales repon that feeds llve and gives overall numbers.

lfs Just a comedy of never-endlng errors, but people are more interested in arguing than readlng, The truth is very slmple once you learn toproperly read the data,.. but that requlres understanding whether you're reading the CORRECT data,

REPLY (HTTPS://WWW.DlGlTALMUSlCNEWS.CAMl20lTt0Stl6ISPOTlFY-AUDIAM-LOw-RATES/?REP LYTO CO M =293 I I 2#RES PON D )

https://www.digitalmusicnews.com/20t7l05ll6lspotifr-audiam-low-rates/ t1tr0l20t7


.bxclusive Report: Spotity Artist Payments Are Declining In 2017, Data Shows Page 15 of 19

NickMôy 18,2017 (https://www.dig¡talmus¡cnews,comlz!17l05/ 16/spotify-audiam-low-rðtes/#comment-288919)

can you say "Highway robbery of artists? There ls no explanation more complicated than that.

REPLY (HTTPS://WWW,D¡6ITAtMUSICNEWS.COM/2017 l0Sll615POllFY-AUDIAM-tOW-RATES/?RE PLYTOCOM=28891 9#RES PON D )

N lckMay 18,2017 (https://www.dlgltalmus¡cnews,comlZ017l05l16lspotify.audiam-low-rates/fcommenl-288920)

Why is everybody trylng so hard to figure out what ls simple theft of intellectual property, ðs lf there were some kind of mysterlous ratlonale tothe way Spotlfy can justlô/ thls?

REPLY (HTTPS://WWW.DIGITALMUSICNEwS.COM/2017t05t16tSPOTlFY-AUolAM-LOW-RATES/?REPLYTOCOM=288920#RESPO NO)

wrongMay 18,2017 (httpsi//www.digitôlmus¡cnews.comlzQl7l0Sl16lspotlfy-audiam-low-rates/#comment-288923)

They distribute music and pay out almost 70% of thelr revenue, Whatever ls done with that 7096 ls not on them ¡t is on the labels and artlstsand whatever deal they signed.

REPLY (HTTPS://WWW.DIGITALMUSICNEWS.COM/2017 l0Sll6tSPOTlFY-AUDIAM-LOw-RATES/?REPTYTOCO M=288923#RESP O ND l

Jeff PrlceMay26,2017 (https://www,digltâlmusicnews.com/2017/05/16/spotlfy-åudiam-low-rates/fcomment-289390)

Not really, Spotifr/s value comes from the number of people that use the servlce (market shðre). lt does not come from how much moneythey make off rnus¡c.

Thls is why they lose money and are going to have a publlc offerlng at a value of about $13 billion.

They use artists to get their fans to use thelr servlce and translate th¿¡t market share to financial value

Making money off the muslc ls not a concern.

lmagine what lt would look llke if Spotiff could only have a publlc offerlng if it was profltable. Then lt would have to create a servlcewhere they prlced the product at the rlght prlce and offered something everyone wanted.

Perhaps less would use lt but pay more.

But they don't need to worry about that, they only need to worry about collecting people,

Whlch ls why there is a "Free Tie/'where anyone can use Spotlô/, And the amount pald to the songwriter when the recordlng stream is$0.00014 barely something you can call money,

REPLY (HTTPS://WwW.DIcITALMUSICNEWS.cOM/2017 l05t16l SPOTIFY-AUDIAM-LOw-RATES/?REPLYTOCOM=289390#RESPOND)

https://www.digitalmusicnews.com/2017105/I6lspotifu-audiam-low-rates/ nlt0l20t7


Exclusive Report: Spotiff Artist Payments Are Declining In 2017, Data Shows Page l6 of 19

MKVJune 5,2017 (https://www.dlgit¿lmuslcnéws.com/2017/05/16/spotlfy-¿udlam-low-rates/#comment-289728)

One point that I haven't really seen ln these discusslon is the fact that radlo vs streaming ls not that dlfferent, When a song plays on there's a

relatively flat fee twhich depends on â variety of factors), but ð ton of people llsten to it, W¡th a popular station we m¡ght be talklng abouthundreds of thousands of people (l have no idea of actual numbers), so when you divide the amount payed per radio play to the artlst wlth thenumber of listeners you might actually get very close to what an artlst gets per stream.

That sâid, I have no clue whether thls is the case, so someone would have to look up the stats and do the math. And, of course, there's theissue of buylng records whlch streamlng affects tremendously

REPLY (HTTPS!//WWW.DIGITALMUSICNEWS.COM/2017t0Sll6tsPOTlFY-AuDlAM-LOW-RATES/?REPIYTOCOM=289728#RESPON D)

BlakeAugust 5,2017 (https://www.rJlgitalrnusicnews,com/20'lTlo'll6lspôtiîy-audiam-low'rates/#commênt-293102)

l'm not lnterested in a debate wlth åll those who can't read a statement, confuse pa¡d with free, quote combined rðtes, etc, For those who reallyare maklng thelr living this way, and can take a look at the exact per country and per tler rates, pleðse help me understand something.

Spotlry has conslstently pald me S8k or more per month for most of the past year, so I am qulte troubled to see that ln the past couple ofmonths (pay perlods for March and Aprll 201 7), US paid tler per stream räte has dropped from -1.4Eu to -0.4Eu.

What the hell ls golng on? They've been extremely conslstent up unt¡l th¡s poinl and that tier has not varied by more than .001 in at least thepast year, For anti-Spotiô/ noise out there, thls is a masslve and sudden shlft, Somethlng really has changed, and very suddenly at that.

Does anyone know whafs going on? Accounting error? New deal with Universal meâns theyre taking out money BEFORE they calculate the 70gó

Somethlng huge has just happened. Who has info?

REPLY (HTTPS://wWW.DI6ITAtMUSICNEWS.COM/2017t0Stl615POTlFY-AUDIAM-[OW-RATES/?REPLYTOCOM=2931 02#RESPON D)

Ethha nOctober27,2017 (https://www.digltalmusicnews,com/2017/05116/spotify-ôudlam-low-rates/#comment"296750)

There are many problem wlth todays musical apps llke Spotlfy for example. Here ls why there are problems...GREEDY MEN..,and here all theproblems Spotlñ/ payed a flat flee for fake tracks; or, perhaps unwittingly took the songs of illegal sltes were the artlst don't make ¿ falr amountof money,

Spotlô, refuses to state that they are "guilqy'' (hypebot.com). Spotiff could Just erase all the fake songs off thelr app and the problem woulddlsappear, Whlch means Spotlff could lose large sums of money and have to lãy people offtheirJobs or close down the whole company. They

need to llve up to it,

Another reason ls the artist who are on spotiff are looslng money. "2 years ago Spotlff håd lnvestments from others at $8 billion and now itsover $13 billíon

REPLY (HTTPS://WWW.DIG¡TAtMUSlCNEws.COMt20lTt05/16/5POTIFY-AUDlAM"tOw-RATES/?RE PLYTO COM=296750#RE S PO N D )

https://www.digitalmusicnews.com/2 017 I 05 I I ílspotiff -audiam-lowrates/ rIll0l20t7


Excluslve Keport: Spotlty Artrst Payments Are Declmmg ln '2UL'1, Data Shows

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Exclusive Report: Spotity Artist Payments Are Declining ln 2017, Data Shows Page l8 of 19

Dlgltal Muslc News ls the leadlng authorlty for muslc lndustry professlonals worldwlde. We are based ln Sðnta Monica, CA. More about us here

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Excluslve Keport: spotlfy Artlst tsayments Are Declmmg ln'¿ul'1, Data shows

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4


Spotiff - Manhattan Venture Partners

Home (http://mvp.vc) About (https://mvp.vclabout/)

Media (https://mvp.vclmedia/) Venture B¡es (https://mvp.vclventure-bytes/)

Private Company Library ftttps : / /mvp.vc/private-company-library/)Media Mentions (https://mvp.vc/media-mentions/)

Liquidþ Watchlist (https ://mvp.vclliquidity-watchlist/)

s, zrz.858.99oo (tel:2128S8ggoo)

M (mailto:[email protected]) f (https://www.facebook.com/manhattanventurepartners)

I (https ://twitter.com/mvpvc)

Page I of 47

M IINHATîANVËNTURE PARTNERS(https://mvp.vc)

Spotify Research Report

Spatifrr'The Rock Star of Streaming ServicesStreaming music is becoming, if it is uot already, the premier mode of music consumption. Spotifu

has been at the forefront of this secular change displacing traditional modes of listening with on-

demand service. We are updating our initiation report and introducing our new valuation based on

comparative valuation and DCF analysis. We are reiterating our positive thesis on Spotify given the

ñÊ¡-ñ¡

https : //mvp.vc/researched-company/spotiff / tvt0l20t7


Spotity - Manhattan Ventwe Partners Page? of 47

company's strong competitive position on the back of key differentiating factors such as ease of

discovery, deep social element, loyal user base, a high free-to-paid conversion rate of listeners, and

a large untapped addressable market, particularly in the emerging markets.

METHODOLOGY

Our research process involves proprietary channel checks with users, competitors and industry

experts, and synthesis of publicþ available information from the company and other reliable

sources.

KEY POINTS

. Still the Incumbent Leader... Spotify is the largest on-demand music subscription service in

the world, with over 3oM paying subscribers and 89M active listeners. The company has

maintained its competitive edge by virtue of its vast library of content, a freemium model combined

with a high conversion rate, and compelling price points across its products. We expect 39M paying

subscribers in zo16 and roughly soM by zot7,

. ,...But Space is Getting Crowded. Revamped music services from tech giants are coming on

strong, led by Apple Music, followed by Alphabet's YouTube, and Amazon's Prime Music. But unlike

Spotify, which is a pure-play music company, the driving purpose of these companies is to reinforce

their respective brands, pull users into their respective ecosystems, and ultimately sell their core

products.

. Product Update. Spotify has expanded its product offering, in step with its competitors. While

Apple continues to maintain its "walled garden" of only providing its Music app on Apple TV,

Spotify is partnering with other technology companies with a living room presence. In Qr zo16

Spotiff became available on Android TV and Amazon Echo, expanding the Spotify use cases from

mobile and desktop to other media formats. In addition, the company announced its video initiative

and deepened its tie-up with Facebook.

. Royalty Payments Remain a Hurdle to Profitability. Spotify distributes roughly 70'75%of all the revenues that it receives back to rights holders - labels, publishers, distributors, and

independent artists. We expect Spotify to leverage its growing scale and constructive relations with

the record labels to negotiate lower royalty rates and move toward profitability.

. Spotifo Fairly Valued At $9.58. Spotify's comparative EV/Rev valuation is $ro.9rB and our

lo-year DCF valuation is $8.o68. We believe Spotify is fairly valued at the mid-point of these two

values, or gg.+88. We believe the premium valuation to its last private round of $8.S8 is justifiable

https : //mvp. vc/re searched-company/spotiff / tUt0l20t7


Spotiff - Manhattan Venture Partners Page3 of 47

given the company's strong subscriber growth, its high conversion rate, the recurring subscription

model, constructive relations with the major record labels, and its strong competitive position.

Exhibit r: Spotifu User Base (Mil)

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Spoti$ - Manhattan Venture Partners

Source: Spotífu, MVR Estímate

Exhibit e: Spotifr Revenue ($Mil)

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Spotify Update - Leading the Pack

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Spotifr - Manhattan Venture Partrers Page 5 of47

There have been a few changes since our initiatíon report in December 2014. The company beefed

up its offering, is more widely available, raised more money including a convertible debt round, and

made three acquisítions. Through it all, Spotiff has maintained its competitive lead in on-demand

music streamíng, exiting zor5 with 89 million total listeners, including z8 million paylng

subscribers and 6r million free listeners.

Figure z: Spotiff Listener Base (Mil)

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Spotiff - Manhattan Venture Partners Page 6 of 47

Source : Cornpany reports, Manhattan Venture Research (MVR) estímates

Product Update

As competition heats up in the streaming space, Spotify has continued to expand its product

offering in the hopes of converting more subscribers to its streaming service. While Apple continues

to maintain its "walled garden" of only providing its Music app on Apple TV, Spotify is partnering

with other technology companies with a tiving room presence. In Qr zo16 Spotify became available

on Android TV and Amazon Echo, expanding the Spotiff use cases from mobile and desktop to

other media formats.

The expansion likely served as a pairing with Spotify's other big push-moving into video. The

company announced original video content on the service in May, with music-focused programming

that could eventually lead the way to greater advertising revenue and more branded content. The

enhanced streaming video could be an interesting addition to Spotify's push to move more original

and artist-specific content-for example, streaming concert performances.

In a similar vein, Spotifu is seeking to use its strong presence in social to further its user experience

and brand. Facebook data drives its new Discover Weekly playlist, which has been hailed for its

"uncanny" accuracy in finding new music users like-taking Pandora's main value-add and

enhancing it signifïcantly. Likewise, Spotiff is integrating its data into Bumble, a popular dating

app, to help users select potential dates based on common music preferences, and is now featured

in Twitter audio cards as well.

Figure 3: Spotify Discover Weekly Playlist - Screenshot

(http: //mvp.vc/ ?attachment-id= 19 11)

https ://mç.vclresearched-company/spotifr / tUt0l20t7


Spotifr - Manhattan Venture Partners PageT of 47

Source: Spotífu Websíte

Pricing

Spotify has also had to accept more competitive pricing in recent months. Apple Music and Google

Play Music already had family plans available at $14.99 for up to 6 people, while Spotifu charged a

monthly fee for each additional user until it shifted to the $r+.gg price point. Overall, however,

pricing in the industry seems stable despite a few new entrants.

Spotify's Discover Weekly playlists have 4o million listeners and Apple Music will get a cleaner

interface for fïnding new music when iOS ro launches this fall. All seem to be hunting for that sweet

spot where a little bit of user choice guides a ton of algorithmically-chosen songs.

https : //mvp.vc/researched- company/spotiff / nlt0l20t7


Spotiff - Manhattan Venture Partners Page I of47

Other than the promotions and occasional tweaks, the company's pricing grid remains the same:

Premium subscription for $9.99/month beginning with a free 3o-day free trial. The subscription

comes with the following features: shuffle play, ad-free, unlimited skips, ability to listen offline, play

any track and high-quality audio. The Free option allows only shuffle play and does not include the

other features of premium subscriptions.

Acquisitions

Twitter's recent investment into SoundCloud highlighted the value media and tech companies now

see in direct user engagement. Spotify has managed to stay ahead of the curye here, using cash from

the late zor5 funding round to bolster its position on both sides of the app: engagement with artists

and the user experience. Spotify's success comes from both increasing its user base and deepening

their engagement, and the company is using acquisitions to drive the latter with purchases of

Soundwave, Cord, and CrowdAlbum.

. Soundwave will help enhance Spotify's already popular music discovery features like Discover

Weekly and playlist radio. Expanding users' music tastes with new songs and artists fits into

Spotify's hope to increase usage of the app by existing users;

. Cord, which designs voice messaging for phones and tablets, likely figures into a similar plan to

create a messaging product that will take advantage of Spotiff's social integration and allow users to

discuss their favorite songs more easily;

. Streaming services increasingly see helping smaller artists monetize their audiences as part of

their value proposition. Spotify's April zo16 purchase of CrowdAlbum will enhance the artists'

ability to gather content from their live performances and deliver and promote the content to

audiences.

Overall, Spotiff's record of acquisitions this year shows the company is keen on creating a more

comprehensive listening experience that connects artists and listeners in as many ways as possible.

Funding

Spotiff has raised $z.r billion to date from a wide range of investors. Except for the most recent

convertible debt offering of $t billion, all seven funding rounds were equity rounds from a wide

range of investors. Prominent investors include Kleiner Perkins, Accel Partners, fidelity Ventures,

Goldman Sachs, Li Ka-Shing, Coca-Cola and Technology Crossover Ventures. The last equity

funding round in June 2o1S, Series G, was for $5z6 million at a post-money valuation of $8.5

billion.

https ://mvp.vc/researched-company/spotiff / nll0l20t7


Spotifu - Manhattan Venture Partners Page9 of 47

Spotify tapped the debt markets this past spring, raising $r billion in convertible debt from a

number of prominent investors including TPG, Dragoneer, and clients of Goldman Sachs. As Spotifu

gears uþ for a battle to protect market share against its deep-pocketed rival Apple, additional funds

will help make acquisitions and fund growth in marketing to artists and subscribers.

Terms on the deal include S% annual interest, with the option to convert debt to equity at a zo96

discount. There is also a condition increasing the interest rate and discount if Spotify does not

conduct its initial public offering (IPO) by March zol7-suggesting the company is strongly

considering one and increasing the incentive to do so. With the strong numbers released for rHr6,

another strong performance combined with a thaw in the IPO market might bring the right

ingredients together to go public-and would undoubtedly be one of the blockbuster offerings of the

year.

Given Spotifu's balance sheet position holding nearly $rB in cash, the company seems confident

about its prospects going forward and saw the opportunity to raise cash without diluting current

equity holders.

On a related note, it is worth noting that the record labels are early investors in Spotify. The five

companies and their respeetive holdings include the following: Sony BMG (S.S%), Universal Music

(+.8%), Warner Music (g.8%), EMI (r.g%), and Merlin (r.o%). These investments are particularþ

noteworthy given that Spotiff has become the poster child for all that is wrong with the music

industry - including dwindling industry revenues and declining artists' compensation. On one

hand, the labels are holding onto the status quo, while on the other they have a vested interest in

Spotify's success.

Figure 4: Spotiff Funding Rounds

(http : / /mvp.vc/ ?attachment*id= r9 r z)

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SpotiÛ - Manhattan Venture Partners Page 10 of47

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https : //mvp. vc/researched-company/spotify/ l,u1012017


Spotiff - Manhattan Venture Partners Page lt of47

Source: Pitchbook

Industry tI¡ldateThe recorded music industry has evolved further since our initiation report in December zor4. As

we noted in the report, the industry has been a helpless bystander in the face of changing music

consumption pattern and dwindling industry revenues. But there are signs of changes - for the

better. After two decades of sequential declines, and for the fÏrst time since the Napster-led industry

crash, 2o1S was a pivotal inflection year in a number of respects: revenue grew globally, music

consumption exploded all over, and digital revenues overtook revenues from physical formats for

the first time. Global sales of the recorded music in zor5 touched $rS.o billion, well below the high

of g¿9 billion in 1999 and a most recent high of $16.8 billion in zoo8, but increasing sequentially to

$rS billion from $r4.S billion in zor4.

Figure 5: WW Digital Sales versus Physical Sales ($B)

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Spoti$ - Manhattan Venture Partners Page 12 of 47

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Source: IFPI GlobalMusíc Report 2016, MVR

The Rise and Rise of Streaming Senrices

Streaming music is becoming, if it is not already, the premier mode of music consumption,

outpacing the traditional modes of listening. The competitive landscape has become more intense

with the renewed focus of Apple, Google and Amazon to enter and/or beef up their respective music

offerings. Spotify remains the incumbent leader in terms of premium on-demand subscribers with

over z8 million paylng subscribers and 89 million listener base (as of Dec. zor5), well ahead of

Apple Music, the company's closest competitor, with 15 million paying subscribers.

Digital sales have been a bright spot in the music industry. Sales grew sequentially since zooS

touching $6.2 billion in zor5 (+to.z%Y/Y), driven in large part by growth in subsciption services.

Subscription revenues grew 45.2% in zot5, more than offsetting the decline in downloads and

physical formats. A number of factors have contributed to this surge: increasing broadband

penetration and internet speeds making the listening experience better; access from multiple

devices - particularly mobile; successful bundling deals with ISPs and mobile operators; and

integration with popular social networks such as Facebook and Twitter. All these factors in

combination with a low monthly subscription fee have made the value proposition of subscription

services too compelling to ignore.

Globally, digital now accounts for 4S% of. total industry revenues, and now account for more than

half the recorded music market in r9 markets. In 2015, an additional four countries - Colombia,

New Zealand, Philippines and Taiwan - saw digital revenues cross the 5o% threshold.

Streaming remains the industry's fastest-growing revenue source. Revenues increased 45.2% to $2.9 billion and, over the fïve year period up to aol5, have grown more than four-fold.

https ://mç. vc/researohed-company/spotiff / rUt0l20t7



Figure 6: Global Streaming Revenue Growth ($Mil)

Page 14 of 47

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Spotit - Manhattan Venture Partners Page 15 of47

Helped by the spread of smartphones, increased availability of high-quality subscription services

and connected fans migrating onto licensed music services, streaming has grown to represent t9%

of global industry revenues, up from t4% in 4014. Streaming now accounts for qg% of digital

revenues and is close to overtaking downloads (qS%) to become the industry's primary digital

revenue stream.

Premium subscription services have seen a dramatic expansion in recent years with an estimated 68

million people now paying a music subscription. This figure is up from 4r million in zor4 and just

eight million when data was first compiled in 2olo.

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Downloads remain a significant offering, accounting for zo% of industry revenues. Income was

down ro.5% to g g.o billion - a higher rate of decline than in zot4 Ç 8.2%). Full album downloads

are still a major part of the music fans' experience and were worth $r.+ billion. This is higher than

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https ://mvp.vc/re searched-company/spotiff/ rUt0l20t7


Spotiff - Manhattan Venture Pa¡tners Page 16 of 47

Performance rights revenue - revenue generated through the use of recorded music by broadcasters

and public venues - increased +.+% to $z.r billion and remains one of the most consistent growing

revenue sources. This revenue stream now accounts for 14% of the industry's overall global revenue,

up from ro% in zorr.

Revenues from physical formats declined, albeit at a slower rate than in previous years, falling by

4.S% compared to 8.S% in zor4 and to,6% in zor3. The sector still accounts for g9% of. overall

global income and remains the format of choice for consumers in a number of major markets

worldwide including Japan (ZS%), Germany (6o%), and France (qz%),

Audio Streaming Surpasses Music Videos

Despite the popularity of video streaming, Americans are consuming more on-demand audio

streaming than music videos. According to data from BuzzAngle, an anal¡ics provider, since the

start of zoró Americans purposefully played rr4 billion audio streams on apps like Spotify, Tidal,

and Apple Music, versus watching gS billion music video streams on apps like YouTube. This

represents a big resurgence for pure listening since the rise of MTV.

On-demand audio streaming was up to7.8% in the US in the first half of 2016 compared to the first

half of zor5, while video streaming grew zg%. On-demand streaming as a whole rose 58.3%, and

these numbers don't count online radio streaming like Pandora.

Figure 8: Audio Streams vs Video Streams: rHr6 vs rHr5

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Source: BuzzAngle

fnvestment ThesisWe are reiterating our positive thesis on Spotify. We believe the company has established a strong

competitive position in the on-demand music streaming business and is well positioned to capture a

growing share of the addressable market ahead. Our positive opinion is tempered modestly by the

high royalty payout structure and rising competition from the Internet majors. We highlight the key

positives and negatives below.

Positives

. Curated Access. The music world has come a long way from the days when ownership of

physicat records or listening to the non-interactive terrestrial radio was the only way to listen to

music. Today it is all about curation and discovery to engage a fickle audience and build loyalty.

Spotify is at the forefront of this changing dynamic, if not the key service driving this change. The

company has staff-curated playlists, and users can also make their own playlists. There are more

than a billion playlists on the site, essentially functioning as the album of the streaming world.

https ://mvp. vc/researohed-company/spotify/ nll,0l20t7


Spotifr - Manhattan Venture Partners Page l8 of47

Users can attract followers, follow friends, share and co-generate playlists. Users in motion can

crowdsource and share on uniquely mobile and social platform. Well, known artists have and are

emerging as hundreds of thousands of followers play and discover songs and artists from those

whom theyfollow.

Engagement and sharing make Spotify compelling and sticþ while using social network effects to

speed and lower the costs of new customer acquisition. The company has invested in improving the

algorithms to drive the discovery process and keep listeners engaged and sharing. The acquisition ofEcho Nest gave Spotify an enonnous competitive edge. With Echo Nest's expertise in music

intelligence and Spoti$r's access to a large trove of valuable data on listener preferences, the in-

house programmers have developed powerful discovery tools. In effect, Spotify is using song

analytics and user data to help both human and intelligent machine curators select the right songs

for certain activities or moods, and build playlists for those moments. The harvested data, strategic

partnerships and learning algorithms erect barriers to entry and make the Spotify experience

unique and hard to replace.

. A Deep Social Layer. Spotifu has been on the forefront of driving social initiatives. In our

view, music is a fundamentally social experience; we recognize that every activity, be it sports,

dining, or entertainment, has natural personal and shared benefits, and we believe music is no less

a shared experience than any of these. The company's partnership with Facebook has been vital to

its successful launch in the U.S.

Spotify has developed a unique "Play" button, whereby its service can be available on other social

networking partner sites (Google+, TWitter, Yahoo, among others), and third party websites

(Huffington Post, Entertainment Weekly, Mashable, Guardian, among others). Spotiff's platform

allows for the development of third-party apps, and content/service providers, such as Songkick,

Rolling Stone, Pitchfork, Fuse, and Billboard, to develop apps on Spotiff. Mobile apps and mobile

usage dominate Spotify engagement today and are increasingly the way users consume audio

entertainment. The company is able to be ever present and serve all of the needs of users. This is

behind their best in class ability to convert free users into paid subscribers and retain their

subscribers in the face of growing competition.

. Constructive Working Relations with Record Labels. Spotify has excellent relations with

the major record companies and publishers. This is based on talking to a few music industry

executives who have worked closed with the streaming companies. The motive of the labels for

having good relations with Spotify is understandable for two reasons: (r) Streaming services are

generating material revenues for the labels at a critical time in the evolution of the music industry;

https ://mvp. vc/re searched-company/spotiff / tvr0l20l7



and (z) Record labels have an equity stake in Spotify. Beyond good relations, several important

rights owners have actively partnered with Spotiff.

Spotify and Pandora, its closest peer, are actually generating money for the music labels. Warner

Music Group, for instance, indicated that streaming services contributed z5% of the digital revenue

in fîscal so13. What's more encouraging for Warner - and presumably the rest of the big labels - is

that streaming revenue is growing at a healthy rate and offsetting decline in download revenue - a

key revenue source for the labels. Just as encouraging from Warner's perspective is that the declines

in physical revenue continue to outpace digital revenue's growth in the recorded music industry,

something the industry has been aiming for since the late 199os.

Not just the major labels, Spotify has also developed good relationships with individual record

labels. While Spotify's on-demand, online streaming model necessitates the signing of licensing

deals on a label-by-label basis, our channel checks suggest that these relationships are far deeper

than simple revenue-sharing arrangements.

Another noteworthy aspect of the relationship between the record labels and Spotifo is the former's

ownership stake in Spotiff. According to a report published in TechCrunch, the record companies

were awarded roughly t7% o1. the company in the early days of the company. Assuming this report

to be accurate - albeit counter-intuitive given that Spotify has disrupted the music consumption

model * we believe the record companies have a vested interest to work constructively with Spotifu

for the mutual benefit of both. And they are doing just that. The record labels have helped, and

continue to help, Spotiff develops various audience growth and marketing initiatives, and jointly

plan various strategic actions. In return, Spotify has paid out more than $5oo million in royalties to

the labels and has been transparent in all its dealings.

Figure 9: Ownership Stake of Record Companies in Spotify

(http : //mvp.vcl ?attachment-id = rg r8)

https : //mvp. vc/researched-company/spotiff / nlt0l20l7


Spotifr - Manhattan Venture Partners Page20 of47

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record labels have meaningful

financial implications. The company pays out To% of. its revenues in royalties, severely clouding its

path to profitabilþ, and threatening the sustainabilrty of its business model. Spotify has been

losing money consistently since inception, and the biggest obstacle has been the high payout rate of

7o% to TS% to the labels. To the extent the company can prove its "absolute value" to the labels and

the industry as a whole - which we believe it will - we expect the payout rate to get more favorable

in the near future and remove any doubts about its business model. We believe that the value of

Spotify has been demonstrated and that all leading labels now understand that streaming music is

the future.

. Growing Addressable Market. The global music market is large and growing. According to

market data, radio accounts for 8o% of total music listening or roughly 13 hours per week per

person, and in any given week, gS% of the U.S. population listens to the radio at least once.

Additionally, nearþ half of all radio hours are consumed in cars, while just over one-third are

consumed at home. The majority of the rest are consumed during offîce hours. Furthermore,8496 of.

all radio listener hours are on the traditional terrestrial radio. The remaining 16% is split evenly

between satellite radio and Internet radio. Pandora dominates the Internet radio category with

nearþ three-quarters of all Internet radio listening hours. Sirius XM dominates the satellite radio

category.

Against this backdrop, Spotify, with roughly roo million active listeners, and presence in only 59

countries, has just scratched the surface. TWo particularly significant growth opportunities lie in tie-

ups with telecom carriers and automobile companies given rising smartphone penetration

worldwide and improved broadband speeds.

Negatives

5.896

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Spotiff - Manhattan Venture Partners Page 2l of 47

Two concerns underlie our positive thesis: a complex and prohibitive royalty structure, and an

increasingly competitive landscape driven in large part by the Internet majors Apple, Google,

Amazon.

. Complex & Prohibitive Royalty Structure. Spotify pays royalties for all of the listening that

occurs on its service. The current contracts stipulate a distribution of roughly 7o% to ZS% of all the

revenues that it receive back to rights holders - labels, publishers, distributors, and, through

certain digital distributors, independent artists themselves. The payout is split amongst the rights

holders in accordance with the popularity of their music on the service. Essentially, the music

companies get paid percentages ofeach subscriber and then get a per-stream rate or a share ofthe

ad revenue, whichever is greater. The label or publisher then divides these royalties to each artist

depending on their individual deals. Furthermore, when Spotify pays a rights holder, it provides all

the information needed to attribute royalties to each of their artists, thereby ensuring complete

transparency.

Spotify's high royalty rate is a cause for concern and has clouded the company's path toprofitability, despite its strong revenue growth. In zot5, the company reported a net loss of €r73

million, and we expect profitability to remain elusive at least early zor8. We believe this is partly a

function of the industry at large, which has seen multiple players grow revenue at a fast pace but

ultimately find it challenging to generate profïts because of high royalty levels. Spotifu's ad-based

radio offering, however, has similar economics as that of Pandora, and, therefore, to the extent that

the company can grow this offering, Spotify could see some relative margin lift. We have modeled

profitability in mid-¿or8 given the current payout structure and the cost run rates.

. Hy¡rer Competitive Landscape. The music streaming industry is overcrowded with too many

players chasing elusive profits and a fickle audience. The biggest beneficiary in this hyper-

competitive landscape has been the active music listener. At any given time, he or she can consume

music from a wide range of outlets: Internet Radio, on-demand services, downloads, terrestrial

radio, or personal collection of physical records.

Figure ro: Listening Options

(http : //mvp.vc/ ?attachment-id = 19 19)

https ://mvp. vclresearched-company/spotify/ tUr0l20l7


Spotifr - Manhattan Venture Partners Page22 oî 47

Source: MVR

Spotify competes primarily in two categories of this landscape: on-demand streaming service and

non-interactive streaming sewice - commonly referred to as Internet Radio. Regarding the other

two areas, Spotify does not sell music downloads (it offers premium subscribers similar access,

wÍthout ownership, in its offline functionality), and terrestrial radio, with 84% market share of the

radio listening audience, is more a feeder of new listeners for Spotify than a competitor.

The following chart shows Spotify's competitive landscape by category, including the terrestrial

broadcast radio companies.

Figure rr: Competitive Landscape by Category

(http : //mvp.vc/ ?attachment-id= 1920)

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Spotiff - Manhatüan Venture Partners Page23 of 47

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The arrival of Apple Music has validated the space and raised the awareness of streaming music in

the mainstream. Spotify continues to grow rapidly and has introduced innovations such as its much

praised Discover Weekly feature promoting new music. Rhapsody/Napster hit the 3.5 million

subscriber mark in 2015. The service, a pioneer of digital music, is currently in g4 countries

worldwide. It is available by paid subscription only and is highly focused on extending integration

with social media platforms, having been integrated with Twitter in zor5. Alongside new launches,

existing players in the streaming space are pushing the market forward with a combination of new

product offers and services. YouTube launched its YouTube Red $g.gg subscription service in the

US that covers access to both YouTube and Google Play Music.

Looking deeper, Google Play Music, having doubled user numbers internationally in zot4,launched

new features in zor5 and extended to 6z countries including Japan. It offers a $g.gg/ month

subscription and a $r+.gg/month family plan for six members. It has made curation a big focus,

extending its concierge song-recommendation service to t5 countries after the acquisition of Songza

in zor4. Google has also launched an advertising-supported radio tier to its service in the US and

Canada;

Source: Company utebsítes, MVR

https : //mvp. vclresearohed-company/spotiff / nlt0l20t7


öpouly - vlannanan venture rafiners Page'24 ot 47

Since launching in June 'r5, Apple Music has risen to a global On Demand streaming leader,

reaching r5MM paid subs just a year after its launch, due in part to its huge iPhone install base

(estimated at -S8oMM) and g months free trial;

Amazon Prime Music is part of the Prime bundle and has gained traction on the back of its captive

Prime subscribers. Recent press reports suggest Amazon is finalizing deals with record labels to

offer a standalone On Demand streaming music service for $9.99/month launching in Fall '16 vs

only being available to Prime members currently.

YouTube has proved to be highly popular with millennials. The service has more than SooMM

monthly music video viewers globaþ, per MIDiA and also offers a paid On Demand service as part

of YouTube Red as well as Google Play Music.

Financial Outlook

Developing forward revenue estimates for Spotify is particularþ challenging given the company's

geographic diversity and pricing plans. The company charges 9.99 per month for premium services

in the local currency, whatever that may be. Therefore, when converting to a single currency, such

as the euro, which is the company's functional currency, an incremental subscriber in a particular

region may not have the same economic value as one Ín a different geography.

That said, Spotiff filed its year end 2ot5 financials with their regulatory authority in Luxembourg.

We used the historical actuals through 2o1S as a jumping offpoint to build our forward estimates.

Leading Market Share of On-Demand Subscribers

The company boasts the highest market share in terms of total paying subscribers. According to the

latest market data from IFPA, there was a total of 68 million paylng subscribers worldwide.

Accordingly, Spotifu's market share stands at 4t%, up from 38% in 2oL4.

Figure tz: Spotify Market Share of Paying Subscribers

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Spotify has a growing free listener base. The company exited with 6r million free listeners in zor5.

As with all freemium models, the company's goal is to convert the free ad-supported users to paid

subs. Paid conversion rates are improving, at g1% in zor5 vs. z5% in zor4, a positive for sub growth

and acquisition costs. We expect the conversion rate to improve sequentially, in step with its

initiatÍves to improve the stickiness on the app.

Figure 13: Spotify Aetive User Base Conversion Rate

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https ://mvp.vc/researched-company/spotiff / tvt0/20t7


SpotiS - Manhattan Venture Partners

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popularity, and a compelling value proposition.

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Spoti$ - Manhattan Venture Partners Page 28 of47

Spotiff generates revenues from advertisements and monthly subscriptions. We expect to see

advertising revenue grow strongly this year as well. The primary contributor to ad growth will be

growing number ofusers, and, ofcourse, the associated hours ofusage. Our channel checks suggest

that new users on average spend as much time on the platform as older users.

One limiting factor for ad-based models is that music is fundamentally an audio experience.

Listeners are often not looking at the screen while they are consuming the content (i.e., music). To

this end, a number of brands we have spoken to have indicated that they are hesitant to spend too

much on the music channel because ads that they serve have a tendency to go unseen at a higher

rate than traditional display advertising. We believe this is a fundamental problem with the model,

but we also believe that Spotifu is in a better position than Pandora to be able to monetize

advertising over the long-term as: (i) It is more social than Pandora, which we believe will lead to

higher levels of engagement from the user base; and (iÐ It has a richer suite of apps that are

integrated with the service, which, like the social layer, will drive increased engagement, in our

view.

On the subseription side, we expect revenues in maintaining its robust run rate on the back of

higher conversion rates and a compelling value proposition at $9.99 per month, competition

notwithstanding.

Accordingly, we expect total revenues of Qz,T4S million ($3,o42 million) in zo16, an increase of

4t.t% over 2o1S. For zot7, we expect revenue to grow to €3,564 ($g,gS6 million) million, an

increase of. zg.g%, on the strength of its rising active listener and paying subscriber base but limited

in part by aggressive pricing and promotions by Apple, Amazon, and Google. ($/€ Exchange Rate =

r.:.r).

Figure r5: Spotiff Revenue Estimates

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(http: //mvp.vc/ ?attachment-id = 1925)

https : //mvp. vc/researched-company/spotiff / nlt0l20t7


Spotrty - Ma¡hattan Venture Partners

Source : Company fiIíng s, MVR estímates

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https ://mvp.vc/researched-company/spotiff / tUt0l20t7


Spotiff - Manhattan Venture Partners Page 30 of47

Source: Company fiIíngs, MVR estímates

Profitability

Despite the strong revenue growth, Spotiff has had trouble finding its way to profitability. We

believe this is partly a function of the industry at large, which has seen multiple players grow

revenue at a fast pace but ultimately find it challenging to generate profits because of high royalty

levels. Spotify pays out between 7o% and 75% of all revenues; the music companies get paid

percentages of each subscriber and then get a per-stream rate or a share of the ad revenue,

whichever is greater. As such, we believe Spotify may not turn profitable until mid-zor8.

That said, Spotiff's Internet radio offering (i.e. free service) has better economics. To the extent that

the company can grow this offering, Spotify could see some relative margin lift. Additionally, if the

company can successfully negotiate lower royalty rates, the profitability timeline could shorten

considerably. In 2o1b, Spotify reported a net loss of Qt7B.t million ($r9z.r million). We expect

losses to decline to Qtzt.7 million ($rSS million) in zo16, and €too.4 million ($trr.S million) in

2017.

Similarly, on the EBITDA front, we have modeled EBITDA loss of €126.4 million ($t+o.S million) in

eor5. We expect losses to decline to €59.5 million ($66 million) in zo16, and €33.7 million ($SZ.+

million) inzotT.

Figure 17: Spotify EBITDA Projection (eMil)

(http : / /mvp.vcl?attachment-id= 19 27)

https ://mvp. vclre searched-company/spotiff / tUr0l20t7



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Figure r8: Spotiff Net Loss (CMil)

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https : //mvp. vclre s earched- company/spotiff / tUt0l20l7


Spotity - Manhattan Venture Partners Page32 of 47

Source : Company filíng s, MVR estimates

ValuatîonWe approached Spotiff's valuation from two angles: comparative valuation based on the mean

EV/Revenue multiples of the peer group, and a lo-year DCF analysis.

Accordingly, Spotiff's comparative EV/Revenue valuation is $ro.9r billion and our ro-year DCF

valuation is $8.o6 billion. We believe Spotify is fairly valued at $9.+8 billion, the mid-point of these

two values. We believe the premium valuation is justified given the company's recurring

subscription model, high conversion rate, constructive relations with the major record labels, and

strong competitive position.

Figure 19: Valuation Summary

(http ://mvp.vc/ ?attachment_id= 19 29)

https ://mvp. vclresearched-company/spotiff / nlt0l20t7


Methodologylm p lied

Valuation Price/Sha re


EV/RevenueDCF

$to,zgg s2,696

Page33 of 47

011

Note: Diluted, shcres outstandíng = g006 millíon

Source: MVR

The following section highlights the details of the two methodologies.

Methodology I r Comparative Valuation

Our comparative valuation methodology is based on a mean EV/Revenue multiple of the

comparable companies on the Internet, Digital Media, and terrestrial radio groups. The implied

valuation based on the revenue multiple is justifiable in our opinion given the company's negative

profits and cash flow position for the next two years. Moreover, we believe Spotify is still a revenue

story as reflected in the management's strategy to invest aggressively in growth initiatives at the

cost of profitability to capture market share in an increasingly crowded space.

That said, we looked at a consolidated basket including pure-play streaming companies comprising

Pandora SiriusXM, and Netflix, the three diversified big-cap Internet companies with music

offerings - Apple, Google and Amazon; major publicly traded terrestrial radio companies; and

finally a whole range of the Internet and Digital media companies.

Accordingly, we value Spotiff at $ro.9r billion, or $z,7zg per fully diluted share, based on a peer

group multiple of g.S times our 2016 revenue estimate of $9,o46 million. This is a considerable

premium to Pandora's current valuation of $2.9 billion, and above the company's last private round

valuation of $8.S billion ín June 2o1S. We believe there is room for additional valuation upside ifthe company can show stronger than expected revenue growth on the back of subscriber growth and

increased advertisement sales.

Figure zo: Comparable Public Multiples & Implied Valuation ($Mil)

5

Falr Value $9,427 353

https ://mvp. vc/researched-company/spotiff/ tUt0l20l'l



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https ://mvp.vc/researched- company/spotiff / tUt012017


ttpotity - Manhattan Venture Partners

Source: Thomson Reuters, Yahoo Fínance,IvIVR estímates

Implied Spotlfy Enterprice Valuatlon

(http://mvp.vc/?attachment-id= r93r)

Page 35 of47

htþ s : //mç.vclresearched-company/spotit/ fi,/10120t7


201 5 20168 zQLlE 2018t

Spotifr - Manhattan Venture Partners

lmplÞd Valuatlon from Consolldated Mean Muhlple (ln Eurosl

€ 1,9454.7x

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€

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Page 36 of 47

Note:

Stock

prices

as ofJulg

77,

2017,

close;

Spotify Sales (€MillMeonlmplied Enterprise Value (€m¡l)Less DebtPlus Cash

FX

Spotify Sales (SM¡l)

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Less DebtPlus Cosh

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Source: Thomson Reuters. Yahoo Finance, MVR estímøtes

Methodolog¡y II: Discounted Cash Flow Analysis (DCF)

We expect Spotify to turn cash flow positive in zor8. We projected our P&L model out to zoe5 and

constructed a lo-yeil DCF model. Using a WACC of t296, which assumes a risk-free rate of 3.6%, a

beta of 2.5, market premium g.4%, and a terminal growth rate after 10 years of. 4%, our discounted

cash flow analysis supports a valuation of $8.r billion, or $z,ott per share.

Below, we show our DCF calculation and the sensitivity analysis using a range of WACC from lo-

t4% andterminal growth rates between zYo and 6%.

2OI7L 2018 t_201 5 2016t

https ://mvp. vclresearched-company/spotiff / IUr0l20r7



Figure zr: Spoti$ Discounted Cash Flow Model (DCf)

Page37 of47

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Spotifu - Manhattan Venture Partners Page39 of 47

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Spotifr - Manhattan Venture Partners

Sour ce : M anhattan Ventur e Resear ch

Page 40 of 47

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Spoti$ - Manhattan Venture Partners Page 4l of 47

Abaut Manhattan Venture PartngrsOur Research Methodolory

Manhattan Venture Partners provides clients with accurate, timely and innovative research into thecompanies and sectors we cover. To that end, we have established an experienced team of analysts,

researchers, economists and industry veterans that focus exclusively on private companies with aproven track record of success. Producing quality research on a private company is uniquelychallenging. Our analysts communicate with employees, ex-employees, early investors, VCs,

competitors, suppliers and others to gather valuable information about the company undercoverage. This information enables us to create unique financial models that value the underlyingcompany and provide insight to our clients and industry experts, leveraging years of experience

working for bulge bracket fïrms.

Manhattan Venture Partners reports include business and financial aspects of late-stage companies.

These reports include but are not límited to industry overviews, competitor analyses, SWOT

analysis, products (existing and in development), management and key directors, risks and

concerns, other propriety channels, historical financials, revenue projections, valuations (using

various matrices and valuation recommendation), waterfall analysis, and a capitalization table.

About the Analysts

Santosh Rao

Santosh Rao has over tB years of experience in equity research, primarily within the technology

and telecommunications space. He started his equity research career as an Associate at Prudential

Securities and later moved to Broadpoint Capital (Formerly First Albany Capital), where he was the

Senior Equity Analyst, and later to Evercore Partners, where he worked with the Telecom and Data

Services Group. Prior to joining Manhattan Venture Partners, he was the Managing Director and

Head of Research at Greencrest Capital, focusing on private market TMT research. Mr. Rao started

his career as a Financial Analyst in the Operations Groups at PaineWebber (UBS) and Prudential

Securities. Santosh has an undergraduate degree in Accounting and Economics, and an MBA inFinauce from Rutgers Graduate Business School.

Max Wolff

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Spotity - Manhattan Venture Partners Page 42 ot 47

Max Wolff is an economist specializing in international finance and macroeconomics. Before

joining Manhattan Venture Partners, he was Chief Economist at Greencrest Capital, and prior to

that spent four years as the senior hedge fund anaþt at the Beryl Consulting Group LLC. Mr. Wolff

teaches finance and statistical research methods in the New School University's Graduate Program

in International Affairs. Max's financial markets and Macro-Economics work appears regularly in

Seeking Alpha, The WSJ, Reuters, Bloomberg, The BBC, Russia Today TV, and Al Jazeera English.

t)ÍscIaÍmerI, Santosh Rao, certify that the views expressed in this report accurately reflect my personal views

about the subject, securities, instruments, or issuers and that no part of my compensation was, is,

or will be directly or indirectly related to the specific views or recommendations contained herein.

I, Max Wolff, certify that the views expressed in this report accurately reflect my personal views

about the subject, securities, instruments, or issuers and that no part of my compensation was, is,

or will be directly or indirectly related to the specific views or recommendations contained herein.

Manhattan Venture Partners LLC (Hereafter "Manhattan Venture Partners"), the

parent eompany of Manhattan Venture Research, does and seeks to do business withcompanies covered in this research report. As a result, investors should be aware thatthe firm may have a conflict of interest that could affect the objecti.rity of this report.Investors should consider this report as only a single factor in making theirinvestment decision. This document does not contain all the information needed tomake an investment decision, including but not limited to, the risks and costs.

Additional information is available upon request. Information has been obtained from sources

believed to be reliable but Manhattan Venture Partners or its affiliates and/or subsidiaries do not

warrant its completeness or accuracy. All pricing information for the securities discussed is derived

from public information unless otherwise stated. Opinions and estimates constitute our judgment

as of the date of this material and are subject to change without notice. Past performance is not

indicative of future results. Manhaüan Venture Partners does not engage in any proprietary

trading. The user is responsible for verifying the accuracy of the data received. This material is not

intended as an offer or solicitation for the purchase or sale of any financial instrument. Manhattan

Venture Partners does not have ownership of the subject company's securities. Manhattan Venture

Partners does not have any market making activities in the subject company's securities. The

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opinions and recommendations herein do not take into account individual client circumstances,

objectives, or needs and are not intended as recommendations of particular securities, financial

instruments or strategies to particular clients. The recipient of this report must make its own

independent decisions regarding any securities or financial instruments mentioned herein. Periodic

updates may be provided on companies/industries based on company specific developments or

announcements, market conditions or any other publicly available information.

Copyright 2ot6 Manhattan Venture Research LLC. All rights resened. ltris report orany portion hereof may not be reprinted, sold or redistributed, in whole or in paft,without the written consent of Manhattan Venture Research.

Information Access Level Cl¡ssifiüiltion $yftem fIALCSI

Manhattan Venture Research uses an Information Access Level Classification System (IALCS) to

make clear the degree of access offered by the company(s) covered in all research reports.

Each research report is classified into one ofthree categories depending on its classification. The

categories are:

f++: The company covered by the research report provided substantial disclosures to Manhattan

Venture Partners.

f+: The report was prepared following partial disclosure by the company, including publicly

available financial statements, and/or is based on conversations with past or present company

employees.

f: All reports are prepared using a mosaic research approach. Not all companies are willing and able

to provide substantive access to management and information. In I reports no direct access was

granted.

Research Reports

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ùpoury - vlannauan venture raftners

UffiHR(https : / /mvp.vc/researched-company/ub er-

pre-ipo-research-report/)

(https:/ /mvp.vc/researched-company/pinterest-pre-ipo-research-

report/)

(https : //mvp.vc/researched-company/cloudera-pre-ipo-research-

report/)

(https : //mvp.vc/researched-company/s\ap-21)

alrbnb

Page 44 oI4'l

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company/airbnb/)

Palantir

cltudera $quüre

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research-report/)

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(https://mvp.vc)

^€) Allhaha GroupC- t-.- f¡f:gpperryJ

(https : //mvp.vc/researched-company/alibaba-pre-ipo-research-report/)

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MANHATîANVç,NTURË PARTNERS

M (mailto : info @ m\p.vc)

(http s : I I vrvrw. faceb o ok. con$manh attanve nturepartney (https:/ltwrtter.com/mvpvc) ftttps: I ltwrl

9 5 Penn Plaza, r4th Floor, NewYork, NY rooor

q zrz.8s8.99oo

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-5


tlow we're uenmg Your Mecnanlcals ¡rom ¡itreams Page I ot IU

îuneCore BlogMUSIC PUBUSH|NG, pUBLtSHtNG NEWS

How We're Getting Your MechanicalsFrom StreamsLt/o8/2Jr2l

By Jamie PurporaPresident TuneCore M usic Pu bl ishing Administration

What ls o mechanlcal from a stream?

M e c h a n ica I s f ro m st re a ms aka gtreotnlng.ruechg nl &lg: A m ech a n i ca I roya I tyis a royalty pald to a songurriter whenever a copy of hls or her song isstreamed via an interactive service.

What's an lnteractlve Service vs. Non-lnteractive Service?

lnteractive Service: The user selects the specific song so a mechanical royaltyis due (e.g. Spotify, Rhapsody)

Non-lnteractive: The user does not select a specific song so only a perfor-mance royalty is due (e.g. Pandora, Rdio)

(We'll cover performance royalties from streams in a future article.)

Whenever a song is streamed via any interactive service (e.9. on Spotify, Rhap-sody, Zune), a mechanical royalty is owed to the Songwriter/Publisher. Theroyalty owed varies by digital service and is based on subscriptions and ad rev-enue. On averâge, a mechanical stream pays around $.0008 per stream.

What happens when a song ls streamed in the U,S.?

ln the United States, the mechanical royalties are deducted by the digítal storeand held until they are notified by the Songwriter/Publisher of where to send

the royalties. These royalties are NOT paid through wíth your distributionroyalties! lf you are represented by TuneCore Music Publishing Administra-tion, we register your compositions directlywith the digital stores in the Unit-ed States so you get paid. Remember, being affiliated with ASCAP, BMI or

https://www.tunecore.comlblogl2}lZlll/how-were-getting-your-mechanicals-from-strea... llll0l20|7


How We're Uetung Your Mecharucals t rom streams Page'2 oL lU

SESAC will not get you your streaming mechanical royalties. They are perfor-mance societies and do not collect or license mechanicals.

Whathappenswhen a songls streamed outsideof theU.S.?

For any stream outside of the U.S. (e.g.on Spotify, Deezer, Simfy), a mechani-cal royalty is deducted and paid to the local collection society (e.g. JASRAC inJapan, MCPS in the UK, GEMA in Germanyetc.).

ln order to receive this royalty you need to be affiliated with each one of theseentities and also individually register each one of your compositions separate-ly with each society. lf these societies are not notified properly that your com-positions exist, you do not get paid. Periodl

Another interesting point that most songwriters are not aware of is that notall of the societies will let you affiliate with them directly. Yup, you read thatright.

Two prime examples of this are Japan and Australia. lf you are already affiliat-ed as a songwriter with any other society in the world (like ASCAP, BMl,PRS/MCPS, GEMA, SACEM, etc.)you cannot become a member of JASRAC inJapan oTAPRA/AMCOS in Australia.

In both cases you must also be a resident of that country. So without a publish-ing administrator like TuneCore, you cannot receive your mechanical royaltiesin those territories.

So how do I become oÍfilioted with each collectlon soclety?

This whole process of affíliating with each entity will cost you upwards of$7,000, plus countless hours of your time-time you can better use to create,perform and promote. Language barriers can also make thís a painful process.

Every time you release new songs, you would need to submit new registrationforms for each territory.

fi 5,,,.reasons

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tsl.o\ry we're uetttng Your Mechamcals ¡'rom streams Page 3 of l0

By opting into TuneCore's Music PublishingAdministration service, we handleall of this for you. We wíll register your compositions as your administrator,and you are still listed as the publisher if you have previously affiliated as one,

We do the registrations electronically, within one week of receivingyour in-formation.

lf you release songs through TuneCore, you should send us the new titles tobe registered by submitting the Yofou control through your TuneCore Com-position Manager (click here to learn more about how that works in your ac-

count).

lf the compositions have been released by another artlst, label or distributoroutside of TuneCore, you can fill out the registration form here.

Whenwill I getpald?

One of the most common questions we're asked iswhen will I get paid? Well,that depends on the collecting society, but this process usually takes betweentwelve and eighteen months. Why? Some of the societies account quarterlyand some everysix months.

Also, if your mechanical royalties have been sitting unclaimed, the society wíllhave to sort through their back log of data to locate your mechanicals due forthe streams from previous quarters.

Unprecedented power to getyou morc money.

One of the big advantages of hiring TuneCore to collect your streaming me-

chanicals is the built-in audit trail. lf you distribute songs through TuneCorewe have your sales data.

We use this data to notify each digital store in the U.5. and each societyWorldwide of the streams that occurred, so the society or digítal store can

then release any funds being held for your previously unclaimed compositions.This is a key point that should not be overlooked: never,. in tlre,histprXgf pgh:

Ìishingaçlministration haç,anye*ÍjþLhjt$thçnþilitytçdotbiå, and ít results inmore accurate and complete accounting.

Whot countries are c.overed by TuneCore Muslc Publishing Administratlon?

The major territories currently covered by our service:

r Argentina . Japan

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Þtow We're Gettlng Your Mechanlcals !'rom Streams Page 4 ot'10

o Australia

r Austria

r Belgium

r Brazil

o Canada

c Denmark

* Finland

r France

r Germany

r lreland

¡ ltaly

r Netherlands

o NewZealand

¡ Norway

r Portugal

r South Africa

o Spain

. Sweden

r Switzerland

o United Kingdom

r United States

Now go and write that next hit song and let us make sure you receive your me-

chanícals!

Jamie PurporaPresident TuneCore Music Publishi ng Administration

(lf you missed our article about how we're collecting your mechanicals fromDOWNLOADS, check it out here!)

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CERTIFICATE OF SERVICE

The undersigned hereby certifies that on November 13, 2017, all counsel of record who

are deemed to have consented to electronic service are being served with a copy of this document

via the Court’s SDNY Procedures for Electronic Filing.

/s/ Steven G. Sklaver Steven G. Sklaver


exhibit of dos · 2020-05-27 · in the united states district court southern district of ne\ü...

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