Archive for January, 2016

@theblakemorgan Looking For #irespectmusic Results from Government

January 31, 2016 Comments off

Blake Shumer

Blake Morgan took the #irespectmusic campaign to Capitol Hill again last week, this time in support of the Songwriter Equity Act (bill numbers HR 1283 and S662) with staff in the U.S. Senate.  His meetings included his own New York Senators Chuck Schumer and Kirstin Gellibrand.


Blake Gillibrand

One of the cornerstone principles of the #irespectmusic campaign is to support the ideal of fair treatment for all creators and is not limited to specific legislation.  Here’s an example.  Principle: Artist pay for radio play.  Bill: Fair Play, Fair Pay.  Principle:  Songwriters should be fairly compensated.  Bill: Songwriter Equity Act.

Blake Leahy

Blake’s trip to Washington coincided with the second anniversary of the #irespectmusic petition.  The movement is now in its second session of Congress–it started in the second year of the last session (the 113th) and is now working on the current session of Congress (the 114th).

mikulski blake



Blake wrote this insightful post that we got permission to reprint on MTP:

If I honestly share what I’m hearing in these closed-door policy meetings I’m having with Senate offices, it’s a loud and clear, consistent theme: the grassroots component we’ve all added over the last two years is not the most important thing that will win the fight for American Music’s future.

It is––in fact––the only thing that will do it.

I can’t tell you how many times over the last two days I’ve been told, “Keep doing what you’re doing because as the volume and pressure grows out there, it grows in here. As people step up and speak out more across the country, the people here on the Hill do the same. Look at where this is all at now, compared to just a year ago.”

So here’s my promise. I’m not doubling down.

I’m all in.

Thank you Senators Gillibrand, Leahy, Coons, Mikulski, and their staffs, for meeting with me, for listening, and for having such a productive and honest dialogue with me. This grateful songwriter and music maker hears you too. Loud and clear.


blake coons


#newmusic Weekend: More Water in the Glass

January 30, 2016 Comments off


  1.  Dirty Dozen Brass Band with Robert Randolph (New Orleans), “Cissy Strut” (Medicated Magic LP)
  2. Cilantro Boombox (Austin) “De Carora a South Congress”
  3. Doe Paoro (Brooklyn) “After”
  4. Teen Commandments (Williamsburg) “Balance”
  5. Shakey Graves with Shovels & Rope (Austin) “Unknown Legend”

A Burger Today: Spotify’s Bridge Loan to Nowhere is All the Rage

January 28, 2016 Comments off

“D” is for “desperate.”  And “debt.”  According to the Wall Street Journal:

Swedish music-streaming company Spotify AB has scheduled a series of investor meetings in an effort to raise about half a billion dollars through a convertible bond issue, a person familiar with the matter said Wednesday.

Spotify is eager to have financial firepower at hand should consolidation opportunities arise in the industry, according to the person. The issue won’t necessarily be a prelude to a stock-market listing of the privately held company, the person said.

The Financial Times tell us:

Swedish newspaper Svenska Dagbladet, which first reported the planned funding round, said that the loans would pay an annual interest rate of 4 per cent. In addition, they would convert into equity at a 17.5 per cent discount to Spotify’s share price if the company goes public in the next year.

This financial structure would guarantee lenders hefty returns if Spotify completes a long-mooted initial public offering, whatever the value of its equity. If Spotify does not float within a year, the discount at which the loan converts to equity will increase by 2.5 percentage points every six months.

Spotify’s decision to raise funds by issuing debt rather than equity comes as investors have become increasingly worried that the valuations of many private technology companies are unsustainably high.

Spotify declined to comment on the planned funding round, or why it was seeking to raise $500m so soon after its previous big fundraising.

The FT reports that Deezer pulled its planned IPO on the Paris exchange and also went for the bonds instead:

Deezer, the music streaming service that last year abandoned an attempt to raise €300m in an initial public offering, has secured a €100m cash injection from its existing investors led by Len Blavatnik’s Access Industries.  [Mr. Blavatnik is also a major investor in Warner Music Group.]

The Paris-based company, which ranks as the third-biggest music streaming service by subscriber numbers after Spotify and Apple Music, cancelled its IPO in October after failing to convince stock market investors that it justified a valuation of as much as €1.1bn.

And then there’s Pandora.  Zack’s says in “Pandora Shares Tumble on Convertible Debt Offering“:

[Pandora] will be offering $300 million aggregate principal amount of convertible senior notes due 2020. Morgan Stanley & Co. LLC, acting as the sole book runner for the offering, will be granted a 30 day option to purchase another $45 million worth of notes.

Pandora expects to use some of net proceeds to compensate the “capped call transactions” costs and the remaining for general corporate purposes.

What is very likely common to all three of these companies is that they don’t have Apple’s bank account which itself is probably equivalent to the GNP of many countries.  It’s also likely that all three companies are out of favor with equity investors and bankers.  And as we have heard recently, those guys aren’t babies.  If you need their money, bankers will get their pound of flesh and then some.

Why do I think this?  You mean, aside from the fact that the fremium business model stinks?  In Pandora’s case, they have already had two bites at the equity apple–so to speak–and evidently are not getting a third.  Deezer’s IPO is a bust and it looks like Spotify is staring down the wrong end of a down round.  All are losing money.  Eventually efficient markets figure this stuff out, particularly lately (h/t to Leonardo Fibonacci).

So what to do?

You could cut back on spending and overhead (see my analysis of Pandora’s financials).  But in the heated bidet world, that’s not happening.  Debt!  Debt is the key.

So, if you’ve been reading along, you’ll have noticed that a new financing instrument is all the rage in the “smarter than thou” world of disruptive streaming:  Convertible debt.

I’d Gladly Pay You On Tuesday for a Burger Today

In case you’re not familiar with convertible debt, there’s a few typical components to the debt contracts that are both customary and revealing.  First, realize that these instruments are a hybrid of a loan and a stock offering.  On the loan part, there’s an interest rate and a maturity date, but the interest rate is usually lower than a junk bond because of the stock part.  The lower interest rate is justified by a stock “sweetener” that allows the holder to convert all or part of the principle and accrued interest into stock–hence the “convertible debt” monicker.

The accrued interest part is important–for private company convertible loans, the interest is sometimes rolled into a balloon payment at the maturity date or when the loan converts.  Why?  Because the debtor company needs the cash to run the company, not to make interest payments to a special class of convertible debt holders.  (For those reading along, this could produce a cross-over question with bankruptcy and secured transactions if the payment of interest to the debt holders constitutes a voidable preference in an otherwise insolvent company.  But leave that for now.  The establishment narrative prohibits using “insolvent” and “Spotify” in the same sentence.)

Convertible debt, or “bridge loans”, are common in private company financings when a venture-backed company is running out of money but doesn’t want to, or is not able to, conduct its next round of financing.  The debt holders are sometimes insiders who invested in a prior round and intend to invest in the next round–if it ever happens–but do not want to set the valuation for the future round.

Let me say that again–bridge loans are often used as a way to get cash in the door to keep the company running when it’s not able to get the valuation it wants from investors.  This is particularly true if the valuation is less than the valuation in its last round of funding also called a “down round.”  Venture backed companies avoid down rounds like the plague because it usually results in very nasty things happening to all prior investors and employee stock options or employee stock holders.  This is especially true if the senior holders have aggressive anti-dilution protection that issues new shares to them.

Here’s an example.  Spiffy, a venture backed startup, has had three rounds of venture financing in which it issued convertible preferred stock.  Venture rounds are usually designated by letters as in A round, B round and C round corresponding to Preferred A, Preferred B and Preferred C.  In Spiffy’s case, each round of A, B and C preferred stock was issued at progressively higher valuations.  (Most venture financing valuations are essentially negotiated, i.e., made up, and are determined by the investor and Spiffy’s board of directors with virtually no oversight from anyone.)

Spiffy is planning on “going public,” i.e., registering its shares in a full commitment underwritten initial public offering on a major stock exchange (probably NASDAQ), commonly called an “IPO.”  Unfortunately, it turns out that Spiffy’s management are actually incompetent and the company got sued in two different class actions that call into question whether Spiffy can continue to suck air long enough to put on some lipstick and stockings and get shoved out the door to the great profit of Spiffy executives and investors.

What should Spiffy do?  One thing it can do is go to its insiders–who are highly incented to play ball–and ask them to make bridge loans.  Why?  Because a bridge loan with a principle that is convertible into shares at some future event does not require a current valuation the way a new round of preferred stock would.  That valuation will only occur when the future event comes to pass.  Examples of a future event would be an IPO or the next round of equity financing (the “D round” in this case).

This gives Spiffy some time–usually not very long, i.e., months not years–to get its valuation up and either line up the underwriting syndicate for its IPO or sell shares in an up round.

That’s right–Spiffy would gladly pay on Tuesday for a burger today.  This is not complicated.

Bridges to Nowhere

Here’s another thing–bridge loans are typically not nine figure sums.  They may be millions but usually are much less.  If I had to guess, I would guess that the terms of Spotify’s loans–which appear to be pending, as in not closed–are going to get a lot sweeter for the lenders.  As long as the convert event is not a down round it may not be that bad for investors, although it will almost certainly be highly dilutive for employees.

The problem with bridge loan investors is that one bridge can turn into another if the burn rate stays high.  Remember this part from the FT?

Spotify’s decision to raise funds by issuing debt rather than equity comes as investors have become increasingly worried that the valuations of many private technology companies are unsustainably high.

Once the bubble starts to burst, you can just forget the ever higher valuations.  Like Southern California real estate, what goes up must come down no matter what the streaming boosters or California real estate brokers would have you believe.

Just like people rushing around trying to dump Spotify stock in the secondary market in a desperate search for the greater fool.

And of course we all know who will be left holding the bag, right?

Artists and songwriters who watched a perfectly good business destroyed.

Blake Morgan Takes #irespectmusic Campaign to U.S. Senate Supporting Songwriters Equity Act

January 26, 2016 Comments off

Blake Morgan posted this on his Facebook page today:

blake senate 1

So…today is the day. For the first time, I’ll be bringing the #IRespectMusic campaign to the United States Senate. Over the next two days, I’ll be in Senate offices for discussions on fair market value specifically for American songwriters. The Songwriter Equity Act, like the Fair Play Fair Pay Act, is a crucial piece of legislation supported by both parties that American music makers want, need, and deserve. #IRespectMusic began as a spontaneous online grassroots uprising, and now look at where we’ve brought it, together. I’m saddled up. Game on.

Once again, Blake demonstrates the power of grassroots!  We’ll keep you posted on his journey.

If you’re going to be in Los Angeles for Grammy Week, don’t forget that the California Copyright Conference is hosting a panel on #irespectmusic on February 9, click here for details.


What Did Spotify Know and When Did They Know It?

January 21, 2016 1 comment

Kiss me once, then once more.
What a dunce I was before.
How long has this been going on?

From How Long Has This Been Going On?
Music by George Gershwin, Lyric by Ira Gershwin from Funny Face

If you have been following the separate class actions for songwriter royalties brought against Spotify by David Lowery and Melissa Ferrick, a question might have occurred to you as it has to me:  How long has Spotify known about its songwriter royalty problem?

Given reports that as much 25% of Spotify’s music offering is unlicensed, surely this didn’t happen the week before the first class action was filed.  That’s millions of songs and that kind of mistake takes some time to get to scale.

Thinking back, I remembered the meetings that Spotify hosted in October 2014 as part of its artist outreach campaign.  Those meetings were held in New York, Nashville and Los Angeles.  If Spotify knew at that time that it had this major songwriter royalty problem, what a perfect opportunity to ask for help from artists and songwriters (and of course artist-songwriters).

We asked Blake Morgan what he remembered about the New York meeting he attended.

MTP:  What’s your take on the songwriter class action lawsuits against Spotify brought by David Lowery and Melissa Ferrick (respectively)?

Blake Morgan: Well, I love it when artists and songwriters stand up to the Goliaths of the world in any fashion, and these two lawsuits are no exception. These are courageous and righteous stands being taken by courageous and righteous people in my opinion. And, they’re stands on behalf of multitudes of music makers––not for personal gain––which is what makes them so powerful, and welcome, in my view. Oh also––I really hope David, Melissa and the songwriters win. There’s that, as well.

MTP:  It’s a little early to say definitively when Spotify started having this unlicensed problem, but it seems to have been happening for a while, perhaps for years.  I remember Spotify’s #thatsongwhen Twitter promotion in 2014 backfired because songwriters used it to speak out about low royalties on Spotify.  I don’t recall any songwriters complaining that there were some songwriters who got no royalties paid by Spotify, do you?

Blake Morgan: That’s right. And here’s the major (and unbelievably simple) problem I think Spotify has here: their attitude seems to have been––again, possibly for years––to just go ahead and use music as they wish first, and maybe, gee whiz, get permission for that music later if they really have to. It’s so arrogant. Why didn’t they just do this instead: “if we can’t find the right holders for a musical work we just won’t stream that musical work.” Done. It’s amazing to me that they really bought into that adage, “it’s better to beg for forgiveness than ask permission.” Hey Spotify, how’s your “forgiveness-asking-campaign” looking now?

(Oh, and by the way…they couldn’t “find” David Lowery? Or Melissa Ferrick? Seriously? Goliath doesn’t know how to use the internet? Who’s the luddite now, Goliath?)

MTP:  Billboard reported that you attended the 2014 New York meeting of Spotify’s outreach campaign that was moderated by Paul Pacifico (CEO of the Featured Artist Coalition) and I believe included a number of people from Spotify, correct?  This is the one where they had a private meeting with managers and then let the artists in?

Blake Morgan: Yes, sad but true. It was an offensive meeting to everyone who was in the room, with the exception of the people from Spotify itself, the people they invited to shill for Spotify in an attempt to get the artists in attendance to drink the Kool aid, and the people from the MMF, who seemed to love the meeting almost as much as they love Spotify. I doubt there was an artist who was there, for whom the meeting was held, who wasn’t incensed.

MTP:  Did Spotify ever ask for help at that meeting in identifying songwriters because they were using unlicensed songs?

Blake Morgan: 
Of course not. The subject never even came up. Here’s what they could have done: “Hi Blake, thanks for coming. We’re here with iPads and clipboards right in the doorway of the meeting because we want to make sure––I know it seems micro-managing of us––that we get the most accurate and up-to-date informations for every artist and songwriter we encounter. So, can you write down your Name, address, PRO, label (if you have one), and publishing company? Thanks!” Never happened.MTP:  They had similar meetings in Nashville and Los Angeles, did you hear that Spotify asked for help at any of those meetings?

Blake Morgan: I know for a fact that they did not. They were, apparently, too busy informing all of us at each of these meetings that our “per stream rate will never go up,” and that “Spotify is Spotify’s product.”

MTP:  Did you get the impression at the New York meeting that Spotify was sitting on 10% to 25% of their tracks without mechanical licenses or payments to songwriters or publishers?
Blake Morgan: I honestly had no idea.
[In fairness, Paul Pacifico saw the New York meeting differently according to MusicAlly (“Spotify Admits Its US Tour Encountered Some Problems“):
[T]he Featured Artists Coalition’s Paul Pacifico claims that Morgan was one of “two or three very, very vocal people who came with a strong agenda to deliver some messages to Spotify, as opposed to what we hoped would be more of a dialogue”.]

HAAM Members Need to Re-Enroll by January 31!

January 18, 2016 Comments off

If you are a member of the Austin music community and get your health coverage through the Health Alliance for Austin Musicians (“HAAM”) listen up!  Even if your HAAM card says you are covered through 2016, you need to re-enroll in order to keep your benefits for ALL of 2016 if you haven’t done so already.

The folks at HAAM will help you get through the re-enrollment, but you need to get in touch.  Find out the details on the HAAM website (click here for the direct link).


If you not yet a member of HAAM you can apply.  HAAM says:

We are currently accepting new Member applications. You must be able to prove that you are a working musician, that you live in Travis County or within a 50 mile radius, as well as meet certain income requirements.

If you don’t live in Austin and don’t believe you read that right, you did.  Austin has a special program supported by local area hospitals that provides medical care for Austin musicians.  HAAM is still very relevant for Austin musicians even after the Affordable Care Act for reasons they can explain better than I can.




#newmusic weekend @migrantkids @GetInuit @firebugmusic @andradaymusic @shovelsandrope

January 17, 2016 Comments off

We’re reinstating the “New Music Weekend” feature this week.  We had this for a while a few years ago,   I decided I’d start doing it myself again.

  1. Migrant Kids (Austin) “Thread” 
  2. Shovels & Rope (Charleston, SC) “The Devil Is All Around
  3. Get Inuit (Kent) “Pro Procrastinator
  4. Firebug (New Orleans) “Shallow Water”
  5. Andra Day (San Diego) “Rise Up”
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