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I think this might understate the problems Spotify has. Their earnings reports are public and they are, as the author says, at the mercy of the record labels. I

by MBlume 9y ago

I think this might understate the problems Spotify has. Their earnings reports are public and they are, as the author says, at the mercy of the record labels. If Spotify has an unusually profitable quarter, the labels are simply going to take that as a sign that they set their fees too low, and they're going to rectify that mistake. It doesn't matter what costs they cut, it doesn't matter how they increase their profits, the labels are going to see themselves as entitled to that surplus.

philipodonnell 9y ago
There are other examples (however imperfect) where this dynamic exists without it having a continuously negative effect on margins. Apple/iTunes doesn't seem to be called out as having a ton of risk in this area despite similar dynamics. Cable companies/satellite TV/radio for other industry examples. Not saying it isn't a risk, just that there are accepted strategies for protecting profits as a distribution channel.
- w0m 9y ago
  Those companies are all markedly larger and pull revenue from other places also. what % of iTunes profit today comes from Music vs (movies/books/app/etc)? Spotify is uniquely vulnerable on that front.
  - 2aa07e2 9y ago
    Indeed. I read a great comment somehow related to this on Quora [1]. How can possibly Spotify diversify its income though? [1] https://www.quora.com/Why-do-people-buy-merchandise-of-YouTubers/answer/Matthew-Joseph-Andrews https://www.quora.com/Why-do-people-buy-merchandise-of-YouTu...
    - philipodonnell 9y ago
      Video? I feel like they have a reputation for being good about paying artists, there's a need for a Youtube replacement that lets video creators act more like record labels for their own content instead of being passive participants in the Youtube ecosystem and subject to their whims.
- wmeredith 9y ago
  iTunes is an awful example, if not an outright counterexample. It's famously been run at nearly break-even for most of its life–its sole purpose was to sell Apple hardware for over a decade.
  - joshjkim 9y ago
    even worse for spotify: Tim Cook said that Apple isn't particularly interested in on Apple Music turning a profit - when asked the question directly, he responded: "you're right, we're not in it for the money. I think it’s important for artists. If we’re going to continue to have a great creative community, [artists] have to be funded."[1] I'd say his stated rationale for not caring about money (artists getting funded) is at best a low priority and at worst total fluff - they don't care because they make money on phones/hardware, and it also long-term allows them to price competitors (like spotify) out of the business (I don't think it's a coincidence that he gave this interview in the days before spotify's F-1 went public). to apple, streaming is an ongoing marketing campaign for their hardware and hey, if it breaks even great, but even at a loss they can make it up in hardware profits. I would not be surprised if apple is planning to waiting to announce a significant price or other change to Apple Music right before spotify's first or second quarterly earnings report - not very nice, but it would be a pretty smart thing to do. [1] https://www.fastcompany.com/40525409/why-apple-is-the-worlds-most-innovative-company?utm_source=feedly&utm_medium=webfeeds https://www.fastcompany.com/40525409/why-apple-is-the-worlds...
prostoalex 9y ago
This is similar to sports team which have to renegotiate their talent costs pretty much every year, which I guess is the reason so many sports teams keep the finances private. MANU performance, for instance, lags all common benchmarks.
tdb7893 9y ago
Netflix has a similar issue, which is presumably why they started making their own content. Maybe Spotify should start it's own label
- lambda_lover 9y ago
  I don't think that's feasible for Spotify -- why would you subscribe to a paid monthly music streaming service if most of your music (the 85% produced by artists associated with the "big 4" labels) isn't on the service? Sounds like a good way to drive people back to piracy. Honestly, Netflix's selection is poor enough that I know quite a few people who have gone back to piracy. Spotify is in an even worse position.
  - chrisgd 9y ago
    I think the labels are more reliant on spotify at this point. Maybe you buy publishing rights for a lot of artists to be a label as there is no need for promotions for cds or interacting with radio stations
- robert_foss 9y ago
  Spotify does already create generic versions of popular music.

by MBlume 9y ago

philipodonnell 9y ago

There are other examples (however imperfect) where this dynamic exists without it having a continuously negative effect on margins. Apple/iTunes doesn't seem to be called out as having a ton of risk in this area despite similar dynamics. Cable companies/satellite TV/radio for other industry examples. Not saying it isn't a risk, just that there are accepted strategies for protecting profits as a distribution channel.

w0m 9y ago
Those companies are all markedly larger and pull revenue from other places also. what % of iTunes profit today comes from Music vs (movies/books/app/etc)? Spotify is uniquely vulnerable on that front.
- 2aa07e2 9y ago
  Indeed. I read a great comment somehow related to this on Quora [1]. How can possibly Spotify diversify its income though? [1] https://www.quora.com/Why-do-people-buy-merchandise-of-YouTubers/answer/Matthew-Joseph-Andrews https://www.quora.com/Why-do-people-buy-merchandise-of-YouTu...
  - philipodonnell 9y ago
    Video? I feel like they have a reputation for being good about paying artists, there's a need for a Youtube replacement that lets video creators act more like record labels for their own content instead of being passive participants in the Youtube ecosystem and subject to their whims.
wmeredith 9y ago
iTunes is an awful example, if not an outright counterexample. It's famously been run at nearly break-even for most of its life–its sole purpose was to sell Apple hardware for over a decade.
- joshjkim 9y ago
  even worse for spotify: Tim Cook said that Apple isn't particularly interested in on Apple Music turning a profit - when asked the question directly, he responded: "you're right, we're not in it for the money. I think it’s important for artists. If we’re going to continue to have a great creative community, [artists] have to be funded."[1] I'd say his stated rationale for not caring about money (artists getting funded) is at best a low priority and at worst total fluff - they don't care because they make money on phones/hardware, and it also long-term allows them to price competitors (like spotify) out of the business (I don't think it's a coincidence that he gave this interview in the days before spotify's F-1 went public). to apple, streaming is an ongoing marketing campaign for their hardware and hey, if it breaks even great, but even at a loss they can make it up in hardware profits. I would not be surprised if apple is planning to waiting to announce a significant price or other change to Apple Music right before spotify's first or second quarterly earnings report - not very nice, but it would be a pretty smart thing to do. [1] https://www.fastcompany.com/40525409/why-apple-is-the-worlds-most-innovative-company?utm_source=feedly&utm_medium=webfeeds https://www.fastcompany.com/40525409/why-apple-is-the-worlds...

prostoalex 9y ago

This is similar to sports team which have to renegotiate their talent costs pretty much every year, which I guess is the reason so many sports teams keep the finances private. MANU performance, for instance, lags all common benchmarks.

tdb7893 9y ago

Netflix has a similar issue, which is presumably why they started making their own content. Maybe Spotify should start it's own label

lambda_lover 9y ago
I don't think that's feasible for Spotify -- why would you subscribe to a paid monthly music streaming service if most of your music (the 85% produced by artists associated with the "big 4" labels) isn't on the service? Sounds like a good way to drive people back to piracy. Honestly, Netflix's selection is poor enough that I know quite a few people who have gone back to piracy. Spotify is in an even worse position.
- chrisgd 9y ago
  I think the labels are more reliant on spotify at this point. Maybe you buy publishing rights for a lot of artists to be a label as there is no need for promotions for cds or interacting with radio stations
robert_foss 9y ago
Spotify does already create generic versions of popular music.