Spotify and Ek’s Parlay (Part I)

At a crossroads where platform meets proprietary ambitions

Anthony Bardaro
May 21, 2018 · 16 min read
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Image credit: Bob Lefsetz/Cheyne Gately
  1. ‘Spotify’s equity in artists doesn’t benefit Spotify as a distributor if they don’t have exclusivity’;
  2. ‘The Netflix playbook won’t work for Spotify because music listeners don’t subscribe to multiple services’;
  3. ‘The Netflix playbook won’t work for Spotify because music listeners want the entire back-catalog’

#1: The labels would crush Spotify

Since collusion is illegal, the major labels cannot band-together to crush Spotify. Absent collusion, record labels face a bit of a prisoner’s dilemma in dealing with streaming services. More on that later, but for now, let’s just say that a single label, acting unilaterally, can not mortally wound Spotify. It’s conventional wisdom that Spotify would lose its users were it to lose a major label’s catalog, but that’s theoretically and empirically unfounded.

  1. Either listeners are free agents seeking the biggest selection of tracks,
    or listeners are locked-in to platforms due to accumulated usage data that differentiates their experience through personalization
The four quadrants of music streaming platforms
Spotify’s demand curve is kinked: Very inelastic up to a point, after which it flips to very elastic

#2: Without exclusivity, equity in artists doesn’t help Spotify signup new users

Second, Spotify’s equity in artists, sans exclusive rights to content, simply maximizes the opportunity's IRR. Yes, streaming video platforms maintained exclusive rights to their own original productions, but at the time, Netflix and Amazon Studios had other priorities: hedging against supply chain risk and monetizing their data assets. In such a way, equity-without-exclusivity not only benefits Spotify’s bottom line, but it also creates a moat for the core business.

“Discovery” in the Stone Age

#3 and #4: The Netflix playbook doesn’t apply

Let’s delve right into a direct comparison of Netflix and Spotify…

Netflix vs Spotify marketshare
Netflix vs Spotify content suppliers⁴

Insurmountable network effects

Having secured their turf in their respective quadrants, along with the lionshare of industry usage, Apple Music and Spotify are now “re-bundling” their services, so to speak, creeping into the playlist territory occupied by their respective counterparts:

Apple Music and Spotify are appropriating more and more of the horizontals once occupied by their competitors

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