why Square wants Tidal

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Happy Holidays! I hope you're gearing up for a relaxing week. A few quick things:

1. I am postponing my chat with Mick Batyske until February. It was scheduled for this Wednesday, but I'm gonna take a few more days off before January starts.
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2. There are more conflicting rumors on Lil' Wayne and Young Money's masters sale. Some have said that the sale was only for music from Young Money's collab albums, which features songs like "Bedrock" and "Steady Mobbin'."
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   Others say it's only Lil' Wayne's share and might not include Wayne's own masters. All could be true, but there are reasons to doubt those rumors too. I'll stand by what I wrote last week and the sources I referenced, but I wanted to share more context.

This week's memo covers the report on Square's potential acquisition of Tidal, and a brief year-end recap.

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Why Square Wants Tidal

Last Wednesday, Bloomberg reported that Square discussed acquiring Tidal. According to Bloomberg, Square CEO Jack Dorsey wants to add more complementary business lines to a group that includes Seller and Cash App. The move seemed odd at first glance. Music streaming is a low-margin business, and Tidal is far behind its competitors. I tweeted that the primary value-add was data. But I've thought about it more. There are better reasons than just data.

Double down on Cash App's potential. The mobile payment service is Square's rising star. Cash App's gross profit has grown over 212% year over year (as of Q3'20). It accounted for 48% of Square's gross profit in Q3, and $849 million total gross profit for 2020 so far. It uses hip-hop artists as influencers to acquire customers at a fraction of the cost of most banks. In May 2019, Dorsey said, "This is also something we weren’t expecting, but I think Cash App has touched in the culture."

So far, the acquisition tactics have been social media giveaways. It's effective but limited. There's an opportunity to go deeper with a streaming service that's already geared toward hip-hop content.

Use content to acquire customers. Tidal is more than a music streaming service. It's a content distributor that hosts music, podcasts, interviews, and livestream events. Cash App's hip-hop loving customers already enjoy the content on the platform. Square can use Tidal's existing and new content to attract more customers to Cash App. For instance, Meg Thee Stallion has recently given away free Bitcoin. She could hosts livestream Cash App concerts via Tidal and give away a certain amount to a set number of fans.

Here's the chart from the Cash App essay I wrote in March:

Tidal can also offer free cash or Bitcoin to attract new customers. Cash App is the primary sponsor of one of the most popular hip-hop podcasts—The Joe Budden Podcast. The Tidal acquisition is a deeper step toward using hip-hop content to drive its growth.

It goes back to Jeff Bezos' quote on Amazon's Prime Video strategy. "When we win a Golden Globe, it helps us sell more shoes." Those who stream Amazon video convert from free Prime trials at higher rates and buy more goods from Amazon. Similarly, those Cash App customers who use Tidal may be more valuable than others. There's a path for Tidal to create inexpensive content that can further grow its user base.

Become a commerce platform for creators. Square's Seller services have many tools for artists to run their commerce operations. Tidal would give Square a platform for artists to share their content (music, podcasts, livestream) within the company. This is similar to the creator playbook that SoundCloud is now running, which led to its first profitable quarter ever in Q3'20.

If Square is an early part of these artists' careers, they might be more likely to become powerful Cash App influencers as their careers get bigger. Shopify PM Donald Richard has a great thread on this.

Everything comes at a cost. In January 2017, Tidal was valued at $600 million when Sprint bought 33% of the company. It last reported that it had 3 million subscribers in 2016. Tidal hasn't reported on the stat since, but if the number was worth bragging about, it would have been public. Jay Z's never been shy when his businesses do well financially!

Let's assume Tidal is still worth less than $1 billion. Square can acquire the infrastructure to create and help produce content that its target customers and artists love. It also acquires a small yet loyal customer base of fans who vote with their dollars by supporting Black businesses, and audiophiles who love the HIFI sound quality options.

Dorsey is currently on Disney's board. He may want to recreate that classic Disney synergy map with his own company. It's ambitious, but there's a path—especially if Jay Z is still connected to the business. Tidal could achieve much more than it has under the pseudo-umbrella of Roc Nation.

On that note, don't be surprised when that 2022 Roc Nation Brunch is sponsored by Cash App.

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Trapital Recap 2020

Most viewed essays:

1. ​How Hip-Hop Helped Cash App Grow Faster - Square’s mobile payment service teamed up with rappers to grow fast, use their influence, and acquire the right customers.
2. ​How Issa Rae Became the Modern Mogul - The Insecure star used modern tactics to grow her audience and made timeless moves to build synergies across her businesses.
3. ​How The Weeknd Mastered His Brand - The Toronto artist maintained his mystery and still became a superstar.
4. ​How Travis Scott Growth Hacked Hip-Hop - The Houston rapper became a superstar by finding arbitrage opportunities in the industry and exploiting the hell out of them.
5. ​How Kendrick Lamar Plays the Long Game - The Compton rapper invests his money in real estate and partners with companies to amplify causes he cares about.

Most popular podcasts:

1. ​Ibrahim “Ib” Hamad on Building Dreamville, Managing J. Cole, the Dollar & a Dream Tour, and Starting Dreamville Fest - Dreamville President and J. Cole’s manager Ibrahim “Ib” Hamad talked about how he and J. Cole started Dreamville and how it became what it is today.\
2. ​Steve Stoute on UnitedMasters, a New Deal with Apple Music, Ownership in Hip-Hop, and Why Brands Value Indie Artists - UnitedMasters and Translation CEO Steve Stoute talk about ownership in hip-hop, why the music distribution company partnered with the NBA, Apple Music, and NBA 2K.
3. ​Jason Geter on Heavy Sound Labs, Launching Grand Hustle, Signing T.I. and Travis Scott, and Redefining the Modern Record Label - Heavy Sound Labs founder and CEO Jason Geter came on the Trapital Podcast to break down his rise in the music industry.

Coming soon from Trapital

Essay on TikTok - Will send out next week.

Enjoy the break. Back next week!