Is Spotify Doomed?
Not exactly. But they do need to change their tune.
The September issue of Fast Company features a profile of Daniel Ek, CEO of Spotify, appearing in, as the business publication boasts, his first “major media profile in more than three years.” The profile caused a splash, for sure, as a biographical sketch of a self-proclaimed introvert. In the article, we learn that he recently lost a body-mass competition with friends due to a “strategic error”; that he values the contributions of his team; that he’s motivated by “impacting culture”; that he wears a pair of $3,000 Nikes, gifted him by a Nike executive. “Success for us will be determined by our ability to move faster than everyone else in this space,” he tells Fast Company. Which is an exciting outlook, to be sure.
But for all the notes on his upbringing in Sweden, and his failure as a musician, this profile has left at least one writer (me) asking the question: Where is Spotify going?
The profile’s timing is clear enough, coming on the heels of last week’s announcement of Spotify’s quarterly earnings. Last Thursday, Tamir Koch, president of eMusic, went on Cheddar TV to speak in his typically candid style on Spotify’s results, immediately giving a deeper sense of what’s in store for Spotify.
“Let’s look at the numbers,” says Koch. “They’re losing. Every quarter the losses just grow. I still remember when they were in the tens-of-a-millions of subscribers and losing a quarter of a billion dollars a year. Now they’re losing half a billion dollars a year. And paying 75% cost of goods, and just leaving a gross margin of 25%, I don’t think that they can do much worse, actually.”
Is Spotify doomed? Like Fall Out Boy sings on “Where Did The Party Go”: doomed to organizing walk-in closets like tombs?
Or is it, like Fall Out Boy sings on “Church”: doomed but just enough?
Let’s break down what Tamir said into chunks.
“Spotify is a great service, a fun service, people love it.”
As far as product goes, Spotify brings tremendous value to their consumers. Through their relationship with major labels, they have been able to keep their freemium model going, albeit largely supported by ads. According to The Verge, their total active users per month hit 180 million this year. To give some perspective, that’s more than double the number of physical CDs that were shipped in 2017. This means big dollars for labels like Sony, who until recently held a big share of Spotify’s earnings.
So what’s going on with those private deals to artists?
“They’re trying now to sign artists directly on 50/50 deals.”
In the fall of last year, Spotify launched a new app, Spotify for Artists, which promised artists “a one-stop shop to track your new music as it goes live, control your presence on Spotify, and learn more about your listeners.” And in July, they announced a new functionality for the platform, promising easier access to the editorial team that builds their highly coveted playlists. Earlier this summer, it was reported that Spotify was offering direct deals to artists, with a 50/50 split of profits, as long as they signed exclusively with Spotify.
Interesting for sure. Without question, a 2018 artist wants to control their presence on streaming platforms, and Spotify provides that capability for Spotify. But it’s not exactly a one-stop shop if it doesn’t help them get onto Apple Music, Tidal, and anywhere else they want to be.
So why would Spotify assume that artists would take a 50/50 split instead of getting their music everywhere?
“They’re trying to mimic the Netflix model.”
Remember when Netflix didn’t produce shows? They delivered content created by other networks. You’d sit for hours watching 30 Rock or The Office or Frasier (just me?) and be perfectly happy watching something that had already aired on some bigger network.
But that model just wasn’t paying the bills. Then House of Cards hit, and everything changed. Suddenly, people were flocking to Netflix in hoards to watch programming they couldn’t watch anywhere else.
So it would make sense, then, that Spotify would want to boost investor interest by starting to create exclusive programming. The problem is, the music industry differs from the television industry in one key way.
Unlike with TV, you have your favorite albums you listen to on loop. You want to hear how they sound at the gym, while you’re cooking, before you go to sleep. Every time I go on a long car ride, I always make sure I’ve downloaded one Tom Waits album to my phone. I just need that wry and gravelly delivery with me if I’m going to be on a car or a plane for hours.
People love discovering new music, for sure, but not in the way that people like watching the newest show that’s only available on Netflix. Tidal started as a platform based on exclusivity — for a while, it was the only place you could listen to Life of Pablo or the complete works of Prince. But they quickly were forced to change their model.
That doesn’t mean that original content doesn’t make money. On the contrary…
“Apple became the biggest company in the world because of music.”
What really set Apple apart from all the others, and Netflix for that matter, wasn’t exclusivity of product. It started with a disruptive model. There were other mp3 players on the market when the iPod hit, but the iPod was the only one that had a direct connection to a store full of songs you could legally download for a cheaper price than what you paid at the record store. Additionally, if you wanted to hear just that one Smashmouth song over and over, you no longer had to buy the entire Astro Lounge: you could buy “All Star” for $0.99 and without too much work it would show up on your iPod without any fear of indictment from the FBI.
Before Netflix streaming, you would have to spend hours on the phone with your cable company to get the shows you wanted. And if you wanted to watch an entire season of something? Either wait till a marathon or forget about it.
Spotify disrupted the iTunes model for sure, but it hasn’t gone far enough. They created easy access to entire catalogues of music for a monthly price, and suddenly people who wouldn’t normally spend on music were spending over a hundred dollars per year on music. That’s an amazing idea. But there’s a problem with this model.
“The only people making money today in the music industry … are Apple, Amazon, and Google, which make their money somewhere else.”
Essentially, Spotify and Apple’s platforms guide the profits back to the same places. The money in music streaming is not going back to the musicians. And musicians don’t want to be beholden to just one platform, supported by the dollars of a giant. Our model, as explained in eMusic’s Whitepaper, is to use Blockchain to create a decentralized platform that supports and encourages the creation of music to serve the fans, not the bottom line of the behemoths. As Tamir Koch puts it,
