Spotify is going to be more than just music!
Updated: Oct 18, 2020
Audio is undergoing a massive transition and Spotify is leading the charge. As a company, they are moving from a ‘music streaming platform’ to an ‘audio streaming platform’. Spotify’s founder-CEO Daniel Ek set out to build a platform, launched in 2006, that would attempt to fix the broken model of music distribution that was being picked apart by pirating. "You have to create a product that is better than the pirate sites," Ek told an industry publication back in 2009. "Remember that 95% of all music downloads are still illegal. If you can make money from that, the music business will be in a better position." Ek’s focus for the consumer wasn’t about ownership but access, and that has been a fundamental game-changer. Aggregate a customer using a freemium model, pay royalties to the labels or artists, and continue to scale upwards. It seems to be a model working really well. As of Q2 2020, the company reported 299M monthly active users and 138 million paid global subscribers—while growing its top-line revenue 22% YoY. On a paid subscriber basis, Spotify is also well ahead of its competitors: Apple Music has reported 60 million paid subscribers while Amazon +2.6% music has 55 million music subscribers. Everything sounds good but I see 2 problems:
The first problem I see is about the payout to labels. The royalty model creates a drag for the company. Think about it this way–the more the customers’ stream, the more Spotify has to pay out to the labels. This is why the company has not been able to make profits. Streaming by itself is a technology, not a business. and as such no business plan should solely revolve around said technology itself; just because people care about music doesn’t make it profitable. This is why differentiating itself as an audio first company is really critical.
The second problem I see is the exclusive content limitation. One pattern you ought to realize is that exclusive content eventually matters. Don’t get me wrong, Spotify does a great by creating an experience that allows people to listen to music all day long but how long does that stay? Creating unique content does as a streaming platform. Getting users to stream original content should be taken more seriously. This is another reason why differentiating itself as an audio first company is really critical.
Why are these so worrisome today? Because if tomorrow Jeff Bezos wakes up and decides to make a music streaming service at $5.99 and is serious about it, good-bye Spotify. Same for Apple. If the competition is able to sling money around with little regard for profitability and outspend your cash-strapped startup, why bother innovating and coming up with the next smart business built around music? This is why big tech companies must be broken up but that's a whole another topic to talk about.
Personally, I switched from Apple Music to Spotify and loved every bit of it. The algorithms they use to recommend music are so solid, it makes the audio experience at par with anything else. As a DJ, I am always on the lookout for new tracks and Spotify has made it easier to do so. Below are my predictions on what I see next for Spotify:
Spotify x Podcasts: Spotify has recently started to focus on podcasts which were quite an unchartered territory with no major leader. Joe Rogan Podcast being acquired was a sign that Spotify is not stopping anytime soon. I feel the industry is in its early stages of a podcast revolution. This also makes it a very different proposition to the music industry. It does not have the same legacy of entangled interests between record labels and artists, and nor is it a global corporate machine. It is certainly getting there, but it still retains some of its homespun charms. The fact that the customers are segmented around niches will make it interesting for advertisers as well. Advertising Bureau, marketers spent $479M to advertise on podcasts in the U.S. in 2018—up 53% from $314 M in 2017. Ek himself has said earlier that “The format is really evolving and while podcasting is still a relatively small business today, I see incredible growth potential for space and for Spotify in particular.” In the release of its first-quarter financial report in April 2020, Spotify stated that 19% of its monthly active users engage with podcast content, up from 16% in the prior quarter. These numbers were reported before the acquisition of The Joe Rogan Experience, which neared 200 million downloads over a year ago. I see Spotify getting deeper into podcasts to increase the conversion of paid subscribers and opportunities for them to create a high margin Google-like advertisement platform. Spotify will shape the podcasting industry, from content creation, through to hosting and advertising.
Spotify x Hardware: Spotify might go into a speaker business that works in sync with the app. This might take a few years or acquisition of Sonos maybe? Back in May 2020, they actually released the first hardware which is a voice-controlled device for your car. They dubbed it the “Car thing”. Similar to Alexa, users can say “Hey Spotify” and the device can tap into the users’ account for easy access to playlists. I see the massive potential here. Spotify says that it does not have plans for a specific device, but with the learnings from the hardware and how people use it to listen to music and podcasts, they might just change their minds. I wouldn’t be surprised to see them testing out similar “Voice Thing” or “Home Thing” in the near future.
· Spotify x News: Another potential I see is Spotify getting deeper into the news with the support of voice-over artists or automated voice-overs designed to sound like humans. The BBC, Apple News+ and the Washington Post have in the past month rolled out new ways to listen to their written articles, hoping to give busy subscribers a flexible way to explore stories and to attract new subscriptions, executives said. What’s a potential platform for all of the media companies to be unified under? Spotify.
· Spotify x Meditation: The third potential I see is meditation. A lot of apps have come up recently which are focused on meditation. You can find a couple of playlists with guided meditations but if an app like Calm is part of the Spotify ecosystem, they are bound to attract customers. Spotify has already launched a lot of great playlists but to truly encapsulate the digital mediation industry, it has to have a more solid offering.
· Netflix x Spotify: In the long term, a really strong partnership could be Netflix and Shopify. Long shoot? Probably but not if you deep dive a little it starts to make sense. Netflix has an annual budget of making, licensing, and buying content at $17 Billion. Hypotactically, if a limited budget would apply to audio, it would be a massive disruption. Actually, Netflix has already tried it with Kaam 25, recorded by Indian rapper Divine in 2018. The track had rights under Netflix India Originals LLC. Collectively, Netflix & Spotify could help each other to grow original content.
Spotify has shown it is here for the long term and wants to be part of a larger ecosystem. They are on a way to industry hegemony. Their ambition is to help create that future, dictating the terms of how content is created, distributed, and measured. This is a marked positional shift. It will also prove fundamental in Spotify’s aim of moving beyond music streaming, to become an all-encompassing entertainment platform. They are already going after iTunes, YouTube, and now Audible. Clearly, they aren’t shy and it really excites me to see how a company is making so many right moves, one after the other. They could eventually be the Amazon or Google of Audio.
P.S: I recently launched Unnumbd, a bi-monthly podcast that I co-host where we share real stories of individuals impacted by social issues via poetry. If you want to check it out, do so here.
P.P.S: I also have a curated playlist "Inside Out" with some of my favorite tracks. If you want to check it out it, do so here.