Back when the music industry was being ravaged by piracy and the slow demise of the compact disc, Kjarten Slette and Thomas Walle wrote business-school papers about turning things around. After graduation the two got a chance to test their theories as top executives at a Norwegian streaming music service that made its debut in 2010, not long after Spotify appeared in neighboring Sweden. You may have heard of their startup, Tidal, even though it hasn't flourished.
The also-ran streaming service achieved pop-star status after Jay Z purchased the company for $56 million in 2015 and vowed to use it as a vehicle to revolutionize the music business. But the rapper-turned-mogul didn’t deliver on his grandiose vision. Despite exclusive steaming releases of big albums, including his wife Beyoncé’s "Lemonade," Jay Z's Tidal had amassed only 4.2 million subscribers by May 2016, the most recently available figure. Spotify claims more than 100 million active users, 40 million of whom pay to use its service. Apple Music, a distant No. 2 among streaming services, had 17 million subscribers as of September.
That Tidal remains so far behind its rivals suggests Jay Z is more skilled as a lyricist than as an entrepreneur. But the fault may not be entirely his. Slette and Walle, who served as the company’s head of strategy and business development chief, respectively, believe Tidal was troubled long before the rapper showed up with a check. The two amiable Scandinavians, both in their 30s with scruffy beards and stylish sneakers, left Tidal several months before the sale. While they don't know much about the streaming-music company's current history, they know plenty about its early years.
In fact, Stettle and Walle say they are applying lessons learned from the stumbles at Tidal to their 18-month-old startup, Unacast, which aims to map the physical world using sensor data. The former Tidal executives want their new company to turn out more like Spotify, and they were happy to discuss everything that went wrong from a glass-enclosed office in their WeWork office in Midtown Manhattan.
Tidal has a strange origin story. The child of Aspiro, a Norwegian mobile content company, the streaming-music startup was originally known as WiMP, short for Wireless Internet Music. Slette and Walle concede that the name itself hobbled the service. It was one thing to roll it out in Scandinavia, Eastern Europe, and South Asia. But WiMP stayed away from the U.S., where the word might have made customers cringe. “If we’d wanted to be an international company from day one, we would never have named it WiMP,” Walle says. “To me, it's kind of a great example that shows that we weren't thinking large enough.”
The unfortunate name was symptomatic of a larger problem. Walle and Slette had no experience running a startups—and neither did anybody else at WiMP. At the time, they say, Norway’s most qualified people went into its lucrative oil business. “Nobody wanted to go into tech,” Slette says.
By contrast, Sweden had no oil, but it has a thriving startup culture. Daniel Ek, Spotify’s chief executive and co-founder, had created several companies and become wealthy before launching Spotify in 2008. Unlike his competitors at WiMP, the more experienced Ek tried from the start to turn Spotify into a worldwide business.
The people at WiMP paid close attention to Spotify but decided it was better to move more cautiously. WiMP didn't bother with a free tier of service, which Spotify used to swiftly ramp up its user base. Unlike Spotify, Slette and Walle say, WiMP used clunky middleware early on. Nobody liked it internally, but people rationalized. It was the way WiMP did things. “If we had just looked outside our bubble, we would have said, ‘If I don’t like it, I'm pretty sure my customers don’t like it either,’” Walle says. “But we didn’t have that drive.”
Slette and Walle say they had some exciting times, doing deals with big record labels and telecoms. Sure, they didn't get into the crucial U.S. market, but the executives helped launch WiMP in Bangladesh. “It was an interesting market,” Walle says.
When Walle and Settle called it quits in 2014, Tidal had only about 500,000 users—almost nothing compared with Spotify. “We were always the little brother of Spotify,” Slette says. “Now, when we look at Tidal at that time, we understand why people looked at us like that. We didn’t dare punch above our weight class.” Even so, the two men felt they had shown at least that steaming music was the music industry’s future. It was time to try something else.
It wasn't long after they left that Aspiro sold the company to Jay Z, who changed the name of the company to Tidal. That name, too, came from inside WiMP, where it was used to designate the more expensive premium audio tier. Jay Z relaunched the company at a press conference with such stars as Kanye West and Rihanna. Walle and Slette says they were amazed by the apparent turnaround. “Our first emotion was pride,” Slette says. “Suddenly, the baby we had been carrying for five years was being fronted by Beyoncé, Madonna, and Jack White. But there was also a bit of sadness. It was our baby.”
Of course, as Walle and Slette admit with a touch of ennui, if they’d done a better job with the business and attracted more users, Aspiro might not have sold it. Or it wouldn't have sold it so cheaply. Only a few months after the sale was completed, Spotify did a new round of financing that valued the company at $8 billion. By then, the streaming-music giant had 75 million active users.
It’s unlikely that Jay Z could have paid such a sum for Spotify. He could afford WiMP, which must have seemed a bargain by comparison. But even with his star power, Jay Z hasn’t been able to catch up and or even come close to his rivals. They are even showing signs of regret. Jay Z has tried to sell the company to Apple and Samsung Electronics, according to several published reports. Last March, Tidal sent a letter to its former parent company accusing it of overstating the service’s paltry subscriber number when the deal was struck. A spokesman for Tidal’s onetime owner denied this, and Tidal declined to comment.
When you buy something on the cheap, you sometimes get what you pay for. There’s a reason why Tidal didn't cost Jay Z more.
“We were wimps,” Slette says. “It will be a good song one day,” adds Walle.