What Jay Z’s Tidal Gains By Selling A Stake To Sprint

It’s not the silver bullet Jay Z was hoping for, but it’s a start.

Tidal, the music-streaming service he bought in late 2014, just signed a deal with Sprint that gives the mobile carrier 33% ownership of Tidal and puts Sprint CEO Marcelo Claure on Tidal’s board. The deal, in which Sprint reportedly paid $200 million for the music-streaming service, leaves Jay Z and his cadre of big name artist co-owners in charge of Tidal.

With the deal, Tidal doubles down on the controversial strategy of offering music exclusively to paying subscribers—in this case, people who subscribe to both Sprint and Tidal will get exclusive access to content that not even standard Tidal subscribers can stream. For Sprint, this is a unique perk that it hopes can help lure subscribers to its mobile phone service, which lags behind Verizon, AT&T, and T-Mobile in the United States. The deal includes a $75-million fund for artist marketing and exclusive content.

Contrary to some press reports, it’s not clear whether all 45 million Sprint customers will ultimately be signed up for Tidal at no additional cost or if a bundled, discounted subscription will be offered as an option to Sprint customers. “What this exactly means for current and new Sprint customers and upcoming promotions from Sprint and Tidal will be unveiled soon,” a Sprint spokesperson told Fast Company.

The mobile service provider music bundle concept isn’t a foreign one to Tidal CEO Jeff Toig, who previously oversaw mobile content at Virgin Mobile and later helped launch Muve Music, a now-defunct digital music service that was offered as a bundled offering to customers of AT&T-owned Cricket Wireless. Muve’s assets were sold to Deezer in early 2015 for less than $100 million. After leaving Cricket and Muve, Toig embarked on a short-lived stint as SoundCloud’s chief business officer, but left about a year before the streaming music platform’s subscription service finally got off the ground. In late 2015, Toig joined Tidal as its third CEO in one year, and it wouldn’t be surprising if he brought his affinity for mobile-bundled music services with him.

Either way, the Sprint deal is a big potential subscriber boon for Tidal that comes at a somewhat desperate moment. Almost since its launch two years ago, speculation has swirled over the long-term viability over Tidal’s business, especially as Spotify and Apple Music have both exploded and other players such as Pandora and Amazon have moved toward the on-demand music subscription business. Rumors of potential acquisitions of Tidal, including reported interest by Samsung, Apple, Google, and Spotify, have swirled almost as long.

Tidal seems to have the most to gain in this deal, which is nothing short of a lifeline for the service. In 2015, Tidal lost $28 million as it struggled to carve out its spot in the notoriously challenging music-streaming business. Since then, Apple, Amazon, SoundCloud, and Google have all entered the space, and Pandora—which has 78 million active radio listeners—is launching its own on-demand subscription service this quarter. Apple Music in particular has exploded, growing to a reported 20 million subscribers in just over a year’s time. That’s half the number of people who pay for Spotify (which has a total of 100 million listeners). Meanwhile, Tidal has reported 3 million subscribers, a number that was recently challenged by Norwegian journalists whose reporting suggests that number may actually be lower than 1 million.

Whatever the reality may be, Tidal is now better positioned than ever to grow its subscriber base while the competition heats up. But even massive listener growth isn’t necessarily a recipe for success. It’s worth noting that not even well-established, independent players like Spotify and Pandora have ever turned an enduring profit and that most of the rest of the competition is made up of services incubated by giant tech companies with little concern for the profitability of the streaming music model. A challenging business, indeed.

The stark reality of the economics of streaming music leaves few options for players like Tidal and SoundCloud, beyond being acquired by a bigger company. The Sprint deal suggests one likely path forward for Tidal: Assuming this partnership pays off for Sprint in a meaningful way, the mobile carrier may wind up buying Tidal outright. If nothing else, Tidal’s new $600 million valuation (quite a boost from the $56 million Jay Z paid) may entice other prospective buyers. With Spotify expected to go public later this year and big players Amazon and Apple well-positioned to lure new subscribers, the clock is ticking ever more loudly for Tidal.