I don't think this is a good long term investment.
Disclaimer: I worked for a Spotify competitor in the past, so i have a pretty solid understanding of how the business works.
I think it is a bad investment for one simple reason: Spotify purchases its main product (music) from a oligopoly. I'd estimate that 95%+ of the tracks streamed (by total playtime) are from one of the 3 major music labels: Universal, Sony or Warner. That includes sublabels that in some cases may have a seperate deal with Spotify, but at the end of the day are still part of the big 3. Imagine you are a Sony executive, walking by a news stand and the Wall Street Journal Headline is "Spotify Q2 earnings 30% up". What are you gonna do? You will squeeze them, make them pay, just enough that they survive. And Spotify has zero negotiation power here. If Sptify fails to have a deal with any 1 of these 3 labels, they become useless overnight. People will switch to Apple Music, Amazon PrimeMusic, Tidal or any other service quickly. It doesn't matter if Spotifys app is slighty better than the competitors software if they lack 1/3 of the music.
This is the same problem Netflix & Amazon have been successful in combating. The answer is to become a content owner by competing with the big labels directly.
All Spotify needs to push the big labels back on their heels is to sign a few top 40 artists of their own.
I might be wrong but I remember reading something like 90%+ of streams on music services are of songs currently on the charts. Capture the popular culture like Netflix has and the labels will start rolling over on rates.
> This is the same problem Netflix & Amazon have been successful in combating.
I would say that the jury is still out on that. Lack of Blockbuster movies has always been one of the weak points of Netflix, and they are still in the process of getting started with producing content there (with "Bright" being one of the first of their movies trying to be a Blockbuster).
On the other front, they are highly dependent on existing content that people love, and more and more of that is being owned by Disney and pulled from the platform as they are gearing up for their competing service. If they also fail to keep the other big right holders on the platform then soon all they have will be Netflix content (which is probably their 5-10 year plan anyway since that makes them more profitable).
I'm not sure a Netflix Originals-only catalog will go over well with the subscriber base. Despite some of their first original content having some good hits (e.g. House of Cards), I think over time their hit-rate pretty much adjusted to the levels of traditional cable channels like HBO/Showtime with a lot of mediocre content.
> This is the same problem Netflix & Amazon have been successful in combating. The answer is to become a content owner by competing with the big labels directly.
> All Spotify needs to push the big labels back on their heels is to sign a few top 40 artists of their own
No way that's going to work. Music is VASTLY different from video. In video it takes more time and resources to produce each one and replays are rare. In music everything is super cheap to produce and replays are off the chart.
If Spotify became their own label and signed 100 of the top artists, their old songs are STILL with the previous label and will likely never leave. Spotify still NEEDS those songs or it's SOL.
It’s really not though because music is a loss leader for amazon, apple and google, but it is spotify’s entire business. The only other major competitors out there are either in major cahoots with the big 3 (tidal, pandora) or gone (soundcloud, grooveshark, rdio).
Netflix has this problem too but they “solved” it by making their own content. Amazon are Google are doing the same thing. That’s the direction I see Spotify going, though I wonder why Apple hasn’t done this yet.
Big difference between TV and music streaming, in a nutshell: a TV streaming library is defined by what they have, a music streaming library is defined by what is missing.
Serial TV is consumed like a novel, as long as the next episode is available, the availability of everything else is unimportant. Music is consumed in a much more random access pattern, like a lexicon: if the letter M is missing, it's broken. ("You want that particular song by Morrissey? Sorry. Be sure to check out these five Spotify Originals that have also been tagged with #sad" - no, people won't be willing to pay for that)
I think the long term answer here is legislature that forces companies to license things for the same rate to anyone and that rate must be publicly published.
Let's take a second here. What will happen if Spotify signs new artists and effectively becomes their own record label?
It will start off normally, but eventually (or possibly from the start) Spotify will not allow this music to be streamed anywhere else. It will be exclusive to Spotify, the same way Netflix has done with their originals.
Now what happens? Users are forced to pay for multiple music streaming services, just as happened with the video streaming industry.
This is already a huge burden on users of video sites (and makes piracy a much more appealing option), but is not even acceptable in the music industry. Users create playlists with their own songs, and will want specific songs.
Even with your 90% statistic, which may or may not be true, the other 10% is still very important. I'd imagine that hit songs are streamed more often comparatively but older songs are more important.
Hopefully this fracturing doesn't happen, but if so (as I said) piracy certainly looks more appealing. Especially with Google Play Music allowing you to upload your own music..
Netflix was/is competing with exclusive products like expensive cable channels or established studios' productions which are not available on vehicle radio, youtube and other free avenues. So Netflix is able to get comparable reach to cable TV. For music there are far more avenues to listen for free and unlimited times with some ads.
I think this has a good chance of being a good long-term investment for one simple reason. Spotify has something that few companies have but all dream of: pricing power.
The other week, my kids were watching TV and my wife and I were in the kitchen and one of them yelled out, "Mom, something popped up on Netflix saying the price is going up. What should I do?" My wife and I said the same thing instantly: "Just hit okay." We didn't even know what it went up to...hell I don't even know what it cost before. Pricing power is a helluva thing. Why does Netflix have this power? Because people love it. Because it's a part of their lives. Because people are habit-forming. And Spotify fits this mold pretty well...maybe not as strong as Netflix but still impressive. I think there are millions of Spotify customers out there [raising hang] who couldn't fathom going back to pre-2011...it probably makes them hyperventilate. Spotify could probably charge 2-3x what they charge today and I'm really not sure it would affect subscriber counts.
Remember a couple years ago when Amazon raised the annual Prime fee from $80 to $100 and no one cared? Yeah, kinda like that.
Buying from an oligopoly probably won't matter much here. Apple quickly blew those businesses up in the 2000's. The other problem is that the music industry suffers (like many other industries) from the 80/20 rule: a small group of artists are responsible for the vast majority of the profits. (Actually, I think the music biz is even more lopsided) It creates a weird dynamic for the labels and ultimately gives purchasers like Spotify more power. Consumers don't know anything about music labels - maybe not even their names - but man do they LOVE Spotify. Those kinds of things tend to be good investments.
Why wouldn't everyone just go to Apple/Google Music if Spotify raised their prices? None of them have exclusive content or features that rival Netflix's exclusive library, I don't see why Spotify have any meaningful pricing power. I'm one of those people who hit OK this year when Netflix raised their price, but I'll immediately leave Spotify if they raise their prices and the competition don't - they have nothing sticky for me.
>The other week, my kids were watching TV and my wife and I were in the kitchen and one of them yelled out, "Mom, something popped up on Netflix saying the price is going up. What should I do?" My wife and I said the same thing instantly: "Just hit okay." We didn't even know what it went up to...hell I don't even know what it cost before.
You and your wife both know (subconsciously at least) that people will switch to HBO, Hulu, or any other number of services if Netflix gets unreasonably expensive. It's broke college students that buy Netflix the most, and they would have to get rid of their biggest set of subscribers to raise prices significantly.
Ignorant question (I'm not very familiar with the music business): what do the labels provide to the artists - why do they need to sign with Time Warner/Sony/etc at all, rather than just releasing their music to all distribution channels (Spotify/Apple Music/etc) themselves? I understand for smaller artists the labels can help provide advertising to them, but the larger, well-known stars you mention seem like they should have leverage to negotiate themselves?
Netflix can do that only because they have their own content with a large following. Unless Spotify feels like getting a bunch of popular artists to distribute with them, they're screwed.
This is also magnified by the fact that they have buying power in a way Netflix does not. Netflix has had to product a ton of their own content to retain users, I'm increasingly considering leaving Netflix in favor of Hulu simply because they have far more content from traditional TV channels (from my perspective Netflix is just becoming a worse HBO).
Spotify on the other hand, doesn't have the issue of content being removed from it in the same way. Additionally due to the legacy of radio, there is a generally accepted amount that you should pay per play. This continues to the fact that spotify could over time expand into other areas of the music industry such as being a platform for artists to sell merchandise and concert tickets which is the most viable way for small artists to make money.
I work for one of the big three, though just a technical staff, so I am no where close to knowing the full details of how licenses are signed, but enough to understand at the high level.
I see your points and I think they are very real. Streaming is one of the biggest sources of revenue today for the major players. Territories in music industry is what's squeezing business like Spotify. You can have a deal such that Warner has exclusive right in North America for all licenses, and can then sell to Spotify. Then perhaps another deal is reserved to a Sony-owned label in Eastern Europe. So if Sony doesn't want to sign the deal with Spotify, sure, Greek users may never get to play that song on Spotify.
I remember jumping from Apple Music and YouTube to Spotify because Spotify offers by paying monthly subscription, I have instant access to many music catalogs. Unlike Apple Music, I had to pay $0.99 or whatever per album/song. I am not sure if that has changed since, but it was the #1 reason I left Apple Music.
Since the Big Three has made so much more from streaming deals, they are going to choke Spotify's throat, but also have to deal with Spotify. After all, there is a solid and a strong growth of active users on the Spotify platform.
Big Three will flex muscles, but they won't just let the deal fail. Both sides need the revenue desperately. Netflix is in the same position but it has been producing its original contents so Netflix is less dependent on outsider producers. I think Spotify will do the same: create its own label and production companies, sign artists and make deals with the Big Three at various levels. Perhaps even buy a show ticketing company. Maybe begin to create a broadcast and video platform.
Warner Music Group's owner (Access Industries) is an investor of Spoifty (Access Technology Venture is owned by Access Industries which owns WMG). There's a humor whenever I look at music industry: we play the game of music chair, because your ex-worker might just show up to your conference call the next day representing another music company. Since artist X may have separate deals with separate labels (which in turns separate music recording companies), or because WMG needs Sony's help in India or whatever, in conclusion everyone has a stake in Spotify at the end of the day, even if you are not a direct investor of Spotify.
Unfortunately, every dollar collected is split up 50 times just because it takes many parties to publish a music and then collect the money. Everyone wants a piece, and everyone will have a piece. The pie might be small, but just enough to feed.
You're confusing iTunes with Apple Music. iTunes Music was where you bought songs and albums. Apple Music is a streaming service just like Spotify where you pay monthly to have access to all of the music.
Isn’t the obvious answer for Spotify to start generating their own content and become a label? Aka, the Netflix model. In fact, I’d be stunned if this wasn’t mentioned in their S-1.
Given that music is generally not a substitutable good, margins can only be so strong on the core streaming product to your very point. I'm not really aware of any other revenue stream they may have (do they do ads?) and am curious what they might propose. Presumably they do have enough scale to be possible successful with something tied to monetizing their user data whether through ads or some other value-added service?
Apple, Google, and Amazon can afford to lose money all day long on the music streaming services that they each offer. This is because the services bolster their broader ecosystem of services and products whose aggregate value is far greater than any individual piece on it's own.
That's why Spotify is in a precarious position because streaming is it's only bread and butter.
Similar to UberEats + Uber versus a standalone service like DoorDash or Postmates. Uber doesn't need to make money on UberEats in order to be a successful business. Postmates does and that's a huge problem because delivery is a brutal business.
What if spotify creates their own music label? It's the same situation that Netflix had with licensing content. Spotify has loads of data that the music labels don't. I would hope they will use that data to their advantage. If they don't they're wasting a huge opportunity.
How does endless amount of listener history and preference data give them the upper hand? That data wouldn't exist if they weren't able to license content.
I don't have any opinion on how good of an investment Spotify is, but the power balance between Spotify and the labels may not be as lopsided as you think.
Anyone feel worried about an environment where your competitor products are basically all propped up by big companies who couldn't care less whether they made money as long as they fly low of the anti-competitive radar? Of course your lemonade stand can sell lemonade for a cent a cup if your rich daddy will pay the other 99 cent from his pocket.
For eg. Spotify had to lower their price from $10 per month to $15 per month for 6 (family plan) because Google Play Music offered that price point along with YouTube Red. Of course, neither Google nor Apple need to make money from their music services. Funnily or sadly enough this is true for almost everything Google does other than Ads.
Most people would agree that Spotify is a better music player while each of Google's music apps are bad in different ways, but online subscription services are a market where people want to nickel and dime.
Disclaimer : I worked for one of Spotify and Google competitors.
>Most people would agree that Spotify is a better music player while each of Google's music apps are bad in different ways
I am not so sure about that. Spotify is on top of its game : adjusting the loudness of tracks, using ogg, .. I am however pretty sure that to almost all the users, it makes no difference.
Furthermore, it is very hard to differentiate as a music service. Most of the features are present in all the services (albums, playlists, AI generated recommandations, radios, podcasts, etc) .
Regarding the price, it is up to Spotify to start creating its own content in order to make it go down. Right now the real issue IMO is that the majors are dictating an extremely high monthly price for the service.
I'd argue however that Spotify's song recommendation engine is one of its differentiating factors. I'm always hearing friends rave about how much they love each weeks discovery weekly playlist.
Will be interesting as not many high profile companies try this back door way of listing.
This seems much more like a forced IPO to get someone cashed out than the typical IPO to raise funds.
One thing to remember if you are investing, is that there will almost certainly be no restrictions on selling stock, meaning that employee's, C-level execs and early investors won't have the typical lock up period.
And since they aren't using an underwriter, there is no back stop for the shares sliding on the first day of trading.
This doesn't do a whole lot to inspire confidence in the company, Look for the CEO to make an announcement that they will be holding their shares, or be prepared to buy into a company while the people on the inside are getting out of.
As a user, I'm really excited for them, as an investor not so much. Hopefully they'll release some good news leading up to their IPO which could be as early as March.
There is a time pressure for them to IPO given the terms of some loans they took out in 2016.
It seems the loan included penalties tied to how long it takes them to IPO. Apparently for every six months thereafter till the stock lists, the interest rate will keep going up by 1%.
Isn't the point of an IPO generally to raise funds? In this case, it's just allowing people to sell their shares to the public, right? From the company standpoint, this is almost certainly a negative: additional oversight & reporting to do, no funds raised. I guess a positive is that shareholders can cash out, but as an investor, isn't that a giant red flag?
I guess as an investor, I don't see why I'd buy Spotify shares from an existing shareholder -- my "investment" is not going to the company, it's a bit like buying shares on the market of a mature company, except Spotify isn't that -- it's a money-hole with a highly questionable future. Is there any reason for someone to buy existing shares to expect things to turn around? They aren't getting a capital infusion, it's business as usual except with the additional burden of being a public company.
One advantage a new investor has over someone who provided Spotify with Seed/Series A is greater diversification. Suppose I'm a VC that invested in Spotify, it succeeded and my 20 other seed investments all failed. My retirement wealth is entirely dependent on it's success in the future - your comment outlines why this is risky. Since I am risk averse, I can sell this to a pension fund who will keep it as 1% of their total holdings and we can both be better off, even if we have the same view of the company's likely success in the future.
Of course, if everyone has too optimistic a view on Spotify's future success (could well be the case, I don't have an informed opinion) then buying the stock is a bad idea. But there is not necessarily anything sinister going on when founders/early investors cash out. From Spotify's point of view, they have an inventive to keep these people happy, balanced against the greater regulatory/oversight costs that you highlight.
I don't see how this is a negative signaling issue. When you buy Apple Stock it's not from Apple.
Spotify is going public largely due to terms they agreed to in previous funding rounds, but they are probably not raising money because they either don't need it or believe they can get better funding terms.
If anything, this should be a signal that the company thinks the public stock is under-priced.
How are these two comparable? When Apple IPO'd back in 1980 you were buying stock from Apple.
>"...but they are probably not raising money because they either don't need it or believe they can get better funding terms."
They lose hundreds of millions of dollars year over year, why would they not need it? Also why would they believe that they can get better funding now when they resorted to selling debt with unfavorable term intheir last round of financing?
Spotify is a European company, but in the US there are limits to the numbers of shareholders allowed in private companies. Something similar may apply here.
I hope they do get funding so they can support messaging again, one of the reasons I came back to Spotify was for one of my most beloved features. Sending tracks to friends within the application, but then found out it was removed. I still subscribe to Spotify, but the "copy link" send to friend via text is so much worse than being able to just message within.
Yes, I would like to see more social features that aren't tied to Facebook. I know it's not their core competency, but it's odd that the Friends feature requires FB even though they support "standard" non-FB user accounts. And a timeline-esque view of who's been listening to what at-a-glance would be neat.
No. No. No. I just want a well running, clean looking, audio player. Im sick of companies trying to make apps social and grow them beyond where they are great trying to incorporate bullshit that ruins the app. Spotify is great for local music, streaming, podcasts, etc. All this bullshit video and social crap they push into it ruins it. Imo IPOs kill almost any decency in a product
Maybe this isn't exactly what you were thinking but I wanted to get some social listening features added to Spotify as well so I built JQBX: https://www.jqbx.fm .
This is my biggest gripe with Spotify since I had to reluctantly switch to them due to rdio shutting down: The lack of social features. We had an excellent community over there, seeing what's popular among like minded enthusiasts, discussing albums and playlists, sharing them, familiar faces everywhere. We went to great lengths to re-connect with those old rdio users on Spotify using slack channels, but due to the lack of pretty much any kind of social features or feeling of community, following anyone on Spotify is meaningless and everyone's listening in a silo.
That and the abysmal queue handling make me wish rdio was still around.
Actually, I think networking is their core product (though maybe not competency...).
Their App is tricky to use (easy to skip, rather than enque a song, or accidentally skip while looking at meta data, or searching for tracks to queue).
They have offline working, half-decent play lists (but still too easy to accidentally make a new list, rather than augment an existing one).
However - "everyone" knows it, and knows favourite songs on it, and have an active account - so it's nice at parties, or for sharing tracks in person or via messages, tweets/statuses etc.
The only other thing I'd like to see was a steam/sdk integration for soundtracks in games. Everyone listens to their own music with any (mmo) game worth playing - but it'd be nice to have Spotify cross-fade to the "scary/dramatic" playlist in a fight, and "moody" when the game calls for quiet mood etc.
Can I ask for more context on why you feel there is friction to this route? It seems most mobile applications are moving towards a route where you can share in app content via other messaging mechanisms (sms, gchat, iMessage, etc.)
Sure, it was a great way to message a friend specifics songs or playlists(?) and you could hit play from the message itself in spotify and have a quick dialogue on it. Super enjoyable to scroll back in time and hit play in the messages and hear the songs we've been sending. Now when I get a text of the song being shared I have to wait until I get to a computer and then copy the link and send myself an email or something? Makes it way harder and often I just won't listen to the song that my friend or colleague sent me because it's too much friction. If I do, I end up searching for it manually and then what's the point even.
Is there anything to expect from Spotify aside from music streaming? Anything that might differentiate them in the long run?
Seems really hard to build a sustainable music-streaming business when all major competitors can simply subsidize this rather complementary part of their business (AZ, Apple, etc.).
I agree, this seems like a cash out for a market leader who will decline over time. (For context, I am a paid subscriber and still don't see how spotify remains leader over time due to cost.)
At one point I thought they were positioning themselves to be THE premier, one stop shop for all listening, when they added podcast support and were planning on more. But it's been at least a year since they added Podcast support and it's frightfully bad. I tried to use it for a week and it was just so terrible and lacked all of the basic features of any other podcast app.
I'm not convinced they can do anything else successfully to be honest. At least I'm not impressed with some of the newest stuff like podcasts.
People file lawsuits when companies have filed for IPO because generally that leads to companies being in a "quiet period" in which they cannot effectively respond publicly, which increases the likelihood of settlement, etc. It is also extremely common for competitors to seed the press with negative story lines, taking advantage of the legally mandated quiet period to remove the filing company's ability to counter these stories.
My employer just went through IPO. I was really disappointed how within days of the public confirmation of the S-1, competitors were lying very openly and publicly about things they knew we couldn't refute well because of the quiet period.
I can't really figure out what the merits of the case are, or get an idea who these folks are. Not a lot written about them, even though they have been around for some time.
Has spotify really been playing these major artists without permission? Or is there more to the story?
Not unusual to file for 10x what you think you might collect in the end. If there really are damages, will Spotify just give them 160 million in stock?
Spotify has been doing one feature wrong for as long as I can recall: The Previous Track button will always navigate to the previous track in the list, no matter what you played before, and if there is nothing in the playlist before that track then the button effectively does nothing. Come on! PREV stands for Previous not List Index - 1. Other than that, Spotify works well enough that I do appreciate the service, even if it smells of monopoly.
True, a monopoly would be far more exaggerated, but Spotify still holds the individual largest slice of the share pie according to this report. Their revenue almost 3 times that of any other music streaming service. 'Thanks for the helpful link! I'm surprised only 140 million people subscribe to streaming music.
Don't know, but not having a useful history of tracks is really annoying. Why I've landed on cloudplayer for Android - it allows you to go back to "that nice track three songs back when I was biking down a hill" (when shuffling a large, partially unknown selection).
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Disclaimer: I worked for a Spotify competitor in the past, so i have a pretty solid understanding of how the business works.
I think it is a bad investment for one simple reason: Spotify purchases its main product (music) from a oligopoly. I'd estimate that 95%+ of the tracks streamed (by total playtime) are from one of the 3 major music labels: Universal, Sony or Warner. That includes sublabels that in some cases may have a seperate deal with Spotify, but at the end of the day are still part of the big 3. Imagine you are a Sony executive, walking by a news stand and the Wall Street Journal Headline is "Spotify Q2 earnings 30% up". What are you gonna do? You will squeeze them, make them pay, just enough that they survive. And Spotify has zero negotiation power here. If Sptify fails to have a deal with any 1 of these 3 labels, they become useless overnight. People will switch to Apple Music, Amazon PrimeMusic, Tidal or any other service quickly. It doesn't matter if Spotifys app is slighty better than the competitors software if they lack 1/3 of the music.
All Spotify needs to push the big labels back on their heels is to sign a few top 40 artists of their own.
I might be wrong but I remember reading something like 90%+ of streams on music services are of songs currently on the charts. Capture the popular culture like Netflix has and the labels will start rolling over on rates.
I would say that the jury is still out on that. Lack of Blockbuster movies has always been one of the weak points of Netflix, and they are still in the process of getting started with producing content there (with "Bright" being one of the first of their movies trying to be a Blockbuster).
On the other front, they are highly dependent on existing content that people love, and more and more of that is being owned by Disney and pulled from the platform as they are gearing up for their competing service. If they also fail to keep the other big right holders on the platform then soon all they have will be Netflix content (which is probably their 5-10 year plan anyway since that makes them more profitable).
I'm not sure a Netflix Originals-only catalog will go over well with the subscriber base. Despite some of their first original content having some good hits (e.g. House of Cards), I think over time their hit-rate pretty much adjusted to the levels of traditional cable channels like HBO/Showtime with a lot of mediocre content.
No way that's going to work. Music is VASTLY different from video. In video it takes more time and resources to produce each one and replays are rare. In music everything is super cheap to produce and replays are off the chart.
If Spotify became their own label and signed 100 of the top artists, their old songs are STILL with the previous label and will likely never leave. Spotify still NEEDS those songs or it's SOL.
Netflix has this problem too but they “solved” it by making their own content. Amazon are Google are doing the same thing. That’s the direction I see Spotify going, though I wonder why Apple hasn’t done this yet.
Serial TV is consumed like a novel, as long as the next episode is available, the availability of everything else is unimportant. Music is consumed in a much more random access pattern, like a lexicon: if the letter M is missing, it's broken. ("You want that particular song by Morrissey? Sorry. Be sure to check out these five Spotify Originals that have also been tagged with #sad" - no, people won't be willing to pay for that)
Let's take a second here. What will happen if Spotify signs new artists and effectively becomes their own record label?
It will start off normally, but eventually (or possibly from the start) Spotify will not allow this music to be streamed anywhere else. It will be exclusive to Spotify, the same way Netflix has done with their originals.
Now what happens? Users are forced to pay for multiple music streaming services, just as happened with the video streaming industry.
This is already a huge burden on users of video sites (and makes piracy a much more appealing option), but is not even acceptable in the music industry. Users create playlists with their own songs, and will want specific songs.
Even with your 90% statistic, which may or may not be true, the other 10% is still very important. I'd imagine that hit songs are streamed more often comparatively but older songs are more important.
Hopefully this fracturing doesn't happen, but if so (as I said) piracy certainly looks more appealing. Especially with Google Play Music allowing you to upload your own music..
The other week, my kids were watching TV and my wife and I were in the kitchen and one of them yelled out, "Mom, something popped up on Netflix saying the price is going up. What should I do?" My wife and I said the same thing instantly: "Just hit okay." We didn't even know what it went up to...hell I don't even know what it cost before. Pricing power is a helluva thing. Why does Netflix have this power? Because people love it. Because it's a part of their lives. Because people are habit-forming. And Spotify fits this mold pretty well...maybe not as strong as Netflix but still impressive. I think there are millions of Spotify customers out there [raising hang] who couldn't fathom going back to pre-2011...it probably makes them hyperventilate. Spotify could probably charge 2-3x what they charge today and I'm really not sure it would affect subscriber counts.
Remember a couple years ago when Amazon raised the annual Prime fee from $80 to $100 and no one cared? Yeah, kinda like that.
Buying from an oligopoly probably won't matter much here. Apple quickly blew those businesses up in the 2000's. The other problem is that the music industry suffers (like many other industries) from the 80/20 rule: a small group of artists are responsible for the vast majority of the profits. (Actually, I think the music biz is even more lopsided) It creates a weird dynamic for the labels and ultimately gives purchasers like Spotify more power. Consumers don't know anything about music labels - maybe not even their names - but man do they LOVE Spotify. Those kinds of things tend to be good investments.
You and your wife both know (subconsciously at least) that people will switch to HBO, Hulu, or any other number of services if Netflix gets unreasonably expensive. It's broke college students that buy Netflix the most, and they would have to get rid of their biggest set of subscribers to raise prices significantly.
Spotify on the other hand, doesn't have the issue of content being removed from it in the same way. Additionally due to the legacy of radio, there is a generally accepted amount that you should pay per play. This continues to the fact that spotify could over time expand into other areas of the music industry such as being a platform for artists to sell merchandise and concert tickets which is the most viable way for small artists to make money.
I see your points and I think they are very real. Streaming is one of the biggest sources of revenue today for the major players. Territories in music industry is what's squeezing business like Spotify. You can have a deal such that Warner has exclusive right in North America for all licenses, and can then sell to Spotify. Then perhaps another deal is reserved to a Sony-owned label in Eastern Europe. So if Sony doesn't want to sign the deal with Spotify, sure, Greek users may never get to play that song on Spotify.
I remember jumping from Apple Music and YouTube to Spotify because Spotify offers by paying monthly subscription, I have instant access to many music catalogs. Unlike Apple Music, I had to pay $0.99 or whatever per album/song. I am not sure if that has changed since, but it was the #1 reason I left Apple Music.
Since the Big Three has made so much more from streaming deals, they are going to choke Spotify's throat, but also have to deal with Spotify. After all, there is a solid and a strong growth of active users on the Spotify platform.
Big Three will flex muscles, but they won't just let the deal fail. Both sides need the revenue desperately. Netflix is in the same position but it has been producing its original contents so Netflix is less dependent on outsider producers. I think Spotify will do the same: create its own label and production companies, sign artists and make deals with the Big Three at various levels. Perhaps even buy a show ticketing company. Maybe begin to create a broadcast and video platform.
Warner Music Group's owner (Access Industries) is an investor of Spoifty (Access Technology Venture is owned by Access Industries which owns WMG). There's a humor whenever I look at music industry: we play the game of music chair, because your ex-worker might just show up to your conference call the next day representing another music company. Since artist X may have separate deals with separate labels (which in turns separate music recording companies), or because WMG needs Sony's help in India or whatever, in conclusion everyone has a stake in Spotify at the end of the day, even if you are not a direct investor of Spotify.
Unfortunately, every dollar collected is split up 50 times just because it takes many parties to publish a music and then collect the money. Everyone wants a piece, and everyone will have a piece. The pie might be small, but just enough to feed.
https://25iq.com/2017/12/30/moviepass-premature-scaling/
Given that music is generally not a substitutable good, margins can only be so strong on the core streaming product to your very point. I'm not really aware of any other revenue stream they may have (do they do ads?) and am curious what they might propose. Presumably they do have enough scale to be possible successful with something tied to monetizing their user data whether through ads or some other value-added service?
Apple, Google, and Amazon can afford to lose money all day long on the music streaming services that they each offer. This is because the services bolster their broader ecosystem of services and products whose aggregate value is far greater than any individual piece on it's own.
That's why Spotify is in a precarious position because streaming is it's only bread and butter.
Similar to UberEats + Uber versus a standalone service like DoorDash or Postmates. Uber doesn't need to make money on UberEats in order to be a successful business. Postmates does and that's a huge problem because delivery is a brutal business.
I believe the recently announced lawsuit, coming right before this IPO, may be a fine example of exactly what you're describing.
How do these other services operate in contrast?
really? with their endless amount of listener history and preference data. IMHO Spotify has gained the upper hand.
Rap Caviar, a playlist curated by Spotify, is making music into hits: http://www.vulture.com/2017/09/spotify-rapcaviar-most-influe...
For eg. Spotify had to lower their price from $10 per month to $15 per month for 6 (family plan) because Google Play Music offered that price point along with YouTube Red. Of course, neither Google nor Apple need to make money from their music services. Funnily or sadly enough this is true for almost everything Google does other than Ads.
Most people would agree that Spotify is a better music player while each of Google's music apps are bad in different ways, but online subscription services are a market where people want to nickel and dime.
>Most people would agree that Spotify is a better music player while each of Google's music apps are bad in different ways
I am not so sure about that. Spotify is on top of its game : adjusting the loudness of tracks, using ogg, .. I am however pretty sure that to almost all the users, it makes no difference.
Furthermore, it is very hard to differentiate as a music service. Most of the features are present in all the services (albums, playlists, AI generated recommandations, radios, podcasts, etc) .
Regarding the price, it is up to Spotify to start creating its own content in order to make it go down. Right now the real issue IMO is that the majors are dictating an extremely high monthly price for the service.
This seems much more like a forced IPO to get someone cashed out than the typical IPO to raise funds.
One thing to remember if you are investing, is that there will almost certainly be no restrictions on selling stock, meaning that employee's, C-level execs and early investors won't have the typical lock up period.
And since they aren't using an underwriter, there is no back stop for the shares sliding on the first day of trading.
This doesn't do a whole lot to inspire confidence in the company, Look for the CEO to make an announcement that they will be holding their shares, or be prepared to buy into a company while the people on the inside are getting out of.
As a user, I'm really excited for them, as an investor not so much. Hopefully they'll release some good news leading up to their IPO which could be as early as March.
(http://www.sramanamitra.com/2017/03/08/2017-ipo-prospects-sp...)
I guess as an investor, I don't see why I'd buy Spotify shares from an existing shareholder -- my "investment" is not going to the company, it's a bit like buying shares on the market of a mature company, except Spotify isn't that -- it's a money-hole with a highly questionable future. Is there any reason for someone to buy existing shares to expect things to turn around? They aren't getting a capital infusion, it's business as usual except with the additional burden of being a public company.
Of course, if everyone has too optimistic a view on Spotify's future success (could well be the case, I don't have an informed opinion) then buying the stock is a bad idea. But there is not necessarily anything sinister going on when founders/early investors cash out. From Spotify's point of view, they have an inventive to keep these people happy, balanced against the greater regulatory/oversight costs that you highlight.
Spotify is going public largely due to terms they agreed to in previous funding rounds, but they are probably not raising money because they either don't need it or believe they can get better funding terms.
If anything, this should be a signal that the company thinks the public stock is under-priced.
How are these two comparable? When Apple IPO'd back in 1980 you were buying stock from Apple.
>"...but they are probably not raising money because they either don't need it or believe they can get better funding terms."
They lose hundreds of millions of dollars year over year, why would they not need it? Also why would they believe that they can get better funding now when they resorted to selling debt with unfavorable term intheir last round of financing?
This allows them to cash out and then go sue Spotify for all the stuff they were previously lenient with.
They will no longer have vested interest in the company and no reason to protect it.
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Maybe it'll scratch your itch, figured I'd share.
That and the abysmal queue handling make me wish rdio was still around.
Their App is tricky to use (easy to skip, rather than enque a song, or accidentally skip while looking at meta data, or searching for tracks to queue).
They have offline working, half-decent play lists (but still too easy to accidentally make a new list, rather than augment an existing one).
However - "everyone" knows it, and knows favourite songs on it, and have an active account - so it's nice at parties, or for sharing tracks in person or via messages, tweets/statuses etc.
The only other thing I'd like to see was a steam/sdk integration for soundtracks in games. Everyone listens to their own music with any (mmo) game worth playing - but it'd be nice to have Spotify cross-fade to the "scary/dramatic" playlist in a fight, and "moody" when the game calls for quiet mood etc.
Seems really hard to build a sustainable music-streaming business when all major competitors can simply subsidize this rather complementary part of their business (AZ, Apple, etc.).
I'm not convinced they can do anything else successfully to be honest. At least I'm not impressed with some of the newest stuff like podcasts.
https://www.reuters.com/article/us-spotify-lawsuit/spotify-h...
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Has spotify really been playing these major artists without permission? Or is there more to the story?
Not unusual to file for 10x what you think you might collect in the end. If there really are damages, will Spotify just give them 160 million in stock?
[1] https://musicindustryblog.wordpress.com/2017/11/03/announcin...