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5 things to know about Jay Z’s Tidal amid Apple takeover rumors

Daniel Roberts
Senior Writer

Tidal is still so new that you may not have ever heard of it, but Apple is already considering buying it. On Thursday the Wall Street Journal reported that Apple is “in talks to acquire” Tidal, citing anonymous sources. Tidal denies the talks.

As the Journal writes at the top of its own story, the talks “may not result in a deal.” Twitter went nuts Thursday evening with buzz over the report, but in a week it could be over. The streaming music service carries a number of issues that might make it a foolish purchase for Apple, which is looking to push its Apple Music above the competition, mainly Spotify. Then again, back when rumors first emerged of Apple’s interest in Dr. Dre’s service Beats, they proved very true and in 2014 Apple bought the company for $3 billion.

1. Origins: It started as a Swedish company

Swedish tech company Aspiro, which is headquartered in Norway but trades on the Stockholm exchange, launched Tidal in October 2014. The service boasts “lossless streaming” that is higher quality than a typical MP3. Less than six months later, Shawn “Jay Z” Carter bought Aspiro, including Tidal and a service called WiMP, for about $56 million through his holding company Project Panther. (Aspiro shares popped on news of the sale.) He combined Tidal and WiMP and pushed Tidal as a “hi-fi” premium service, at premium cost—$20 a month, at first, was the only subscription option.

Aspiro told Jay Z it had 540,000 subscribers at the time of sale. But Jay Z is now suing Aspiro and its biggest shareholders, Schibsted Media Group and Verdane Capital, claiming that figure was inflated. “It became clear after taking control of Tidal and conducting our own audit that the total number of subscribers was actually well below the 540,000 reported to us by the prior owners,” Tidal said in a statement when it filed suit. (That’s just one of the lawsuits involving Tidal; more on that in a moment.)

2. Premium model: It charges more for hi-fi quality

Because of the high-fidelity streaming, Tidal has framed itself as the best-quality streaming platform out there, and it priced accordingly. Unlike Spotify and other services, there is no free option on Tidal. When it first launched, it only offered a price of $20 per month, which many criticized. Eventually it added a cheaper $10-a-month option, but only the $20 price tag gets the hi-fi streaming.

One year after launch, Tidal, which had been silent as to user data, released some numbers, and among them was an eye-opener on pricing: The company said 45% of its 3 million paying subscribers (about 1.4 million) pay for the pricier “HiFi” version.

Tidal now says it’s up to 4.2 million paying subscribers. For context, Spotify had 30 million paying subscribers as of March, and Apple Music had 13 million in April. In other words, Tidal is small. But it has grown at a fast clip, and Beats Music had a minuscule 100,000 subscribers when it sold to Apple.

3. Artist owners: Beyonce, Rihanna and 18 others have equity stakes

Including Jay Z, 20 different solo artists or groups are stakeholders in Tidal. Each one (apart from Jay Z and Beyonce) reportedly has a 2% to 3% piece of the company. Fifteen were on board with Jay Z at launch, while another four were added more recently. Drake, who was set to be a partner at first, jumped ship for a deal with Apple Music.

The 20 equity stakeholder artists are: Jay Z; Beyonce; Kanye West; Jason Aldean; Rihanna; Nicki Minaj; Usher; J. Cole; Alicia Keys; Madonna; Arcade Fire; Daft Punk; Deadmau5; Calvin Harris; Chris Martin of Coldplay; Jack White; Damian Marley; Lil Wayne; Cliff “T.I.” Harris; and the French band Indochine.

No doubt these big names are a big reason Apple is interested in Tidal: Apple gets to beef up its Apple Music library with their tunes, but it would also use these mega stars in marketing and other exclusive content.

4. Management problems: It has had three CEOs and other drama

Tidal whipped through three CEOs in its first year. Aspiro CEO Andy Chen stayed on at first, but Tidal let him go after one month. It then appointed a different executive from Aspiro, Peter Tonstad, as interim CEO, and dismissed him in June 2015. In January 2016, it tapped Jeff Toig, the former chief business officer at streaming service SoundCloud. He remains CEO still.

For a new service looking to get on its feet, the shakeup looked bad. And amid management issues, there were internal disputes between artists. The rapper Drake (Aubrey Graham) was initially signed on to Tidal but backed out just two days before the launch event, to sign a deal with Apple Music. It has at times resulted in some confusion over which platform owns Drake singles. In addition, after Rihanna put her album “Anti” exclusively on Tidal for a period, and then saw disappointing numbers in its first week on sale, the mass media reported she was unhappy with Tidal and with Jay Z. In April, Cash Money Records CEO Birdman sued Tidal over its streaming of a Lil Wayne album, but his suit was thrown out.

5. Legal battles: There is a class action lawsuit against it

If Apple were to acquire Tidal, it may have to deal with some lingering legal issues. In addition to Jay Z’s lawsuit against Aspiro, there is a class action lawsuit against Tidal over its promise that Kanye West’s album “The Life of Pablo” would be a permanent Tidal exclusive. (His controversial new video “Famous,” which shows the likenesses of Taylor Swift, Donald Trump, and other celebrities in bed with West, is currently exclusively viewable at Tidal.) The class action suit, led by a Tidal subscriber in California, Justin Baker-Rhett, alleges Tidal “duped consumers into signing up for Tidal subscriptions” with West’s album, which he suddenly released to every other music streaming platform in April, less than two months after vowing, on Twitter, that the album would “never never never” be on Apple.

The suit alleges Tidal knew West’s album wouldn’t remain exclusive, and “chose to fraudulently induce millions of American consumers into paying for Tidal’s rescue.” It is a damning lawsuit, but one that could certainly be settled.

If Apple does decide it wants to be in business with the big-name artist partners in Tidal, low user numbers, lawsuits, or internal turmoil won’t matter much at all.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

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