Did Jay-Z Finesse Jack Dorsey Into Buying Tidal?
In 2021, Jack Dorsey’s company, Block Inc (formerly known as Square), agreed to acquire Tidal for $306 million. This deal made Jay-Z a board member of Block Inc and left many wondering whether Dorsey had been finessed into buying the relatively small streaming service at a premium price.
Block agreed in March 2021 to pay $396 million in stock and cash for an 87.5% stake in Tidal. After adjustments, it paid $237.3 million for an 86.2% stake, according to Reuters. Jay-Z joined Block’s board after the purchase and remains a director.
The purchase of Tidal has been met with skepticism due to Tidal’s financial struggles and legal disputes.
Why would Dorsey buy Tidal?
Shareholders, led by a Florida pension fund, launched a class action suit claiming that Dorsey only bought Tidal as a favor to his friend, Jay-Z. According to Reuters, the complaint quoted an NYU business professor who called the purchase “a $300 million bar tab to hang out with Jay-Z.”
Jay-Z initially bought Tidal (then called Aspiro) with several others in 2015 for $56 million. By 2020, Tidal had signed up 2.1 million paying subscribers, compared with Spotify’s 138 million, Apple Music’s 60 million, and Amazon Music’s 55 million.
Tidal had suffered “multimillion-dollar losses in each of its previous ten quarters,” had lost significant contracts, and accepted a $50 million loan from Jay-Z to shore up its finances.
The platform also faced a US federal lawsuit by artists who said they were owed royalties and a Norwegian criminal investigation over concerns about its inflated streaming numbers.
A favor to a friend?
However, Jay-Z and Dorsey have a history of working together, including collaborating on a Bitcoin development fund and sharing interests in cryptocurrency and philanthropy. Dorsey donated $10 million to Jay-Z and Beyoncé’s nonprofit in May 2020 and even vacationed with Jay-Z in Hawaii just days after the acquisition process kicked off.
Indeed, Dorsey got the idea to buy Tidal while “summering” with Jay-Z’s family in the Hamptons. Dorsey had suggested Block, then called Square, acquire Tidal during a videoconference meeting he took from the Hamptons in 2020, says VICE.
The plaintiffs said that a Block transaction committee met to discuss the Tidal acquisition for only 35 minutes in September 2020. In a follow-up meeting, the transaction committee discussed Tidal’s financial and legal struggles and that Dorsey was “the sole Block management member in support of the acquisition.”
Despite all this, the deal moved forward in March 2021.
A terrible business decision
Nevertheless, a Delaware judge dismissed the class action last week, saying that the case did not show the directors acted in bad faith. Still, the judge admits that it “seemed, by all accounts, a terrible business decision.”
The judge noted that Dorsey may have been “incapable of impartially” considering the acquisition due to his relationship with Jay-Z and effectively used the purchase to further “bolster his relationship” with the artist.
Still, under Delaware law, “a board comprised of a majority of disinterested and independent directors is free to make a terrible business decision without any meaningful threat of liability, so long as the directors approve the action in good faith.”
The future of Tidal under Block ownership remains to be determined. The acquisition included not only Tidal’s user base and content deals but also its legal liabilities and obligations. Block Inc must navigate these challenges and demonstrate its ability to turn Tidal around and make it a profitable venture.