Spotify Saved Music. Can It Save Itself?, Lucas Shaw. (2018). Spotify…
Spotify Saved Music. Can It Save Itself?
Daniel Ek, Spotify Technology SA’s co-founder and chief executive officer, was in a celebratory mood on Feb. 28, the day his streaming music company filed to go public on the New York Stock Exchange.
And like any modern CEO with faith in technology to reorganize the world, he celebrated by threatening anyone who stands in his way.
Spotify, he wrote to investors, will render record labels and publishers obsolete by connecting artists directly to fans.
Ek, 35, started Spotify in 2006 because he thought he could stamp out the piracy that had ravaged the music business.
He was right. Total global music sales have grown three straight years after a 15-year decline. More than 70 million people now pay Spotify an average of about $5 a month to access 35 million songs, plus playlists and podcasts.
In private transactions, investors have valued the company at more than $20 billion, a market cap many analysts expect Spotify to justify when it lists its shares on April 3.
There’s only one small flaw in the business model: Spotify doesn’t make any money.
The service has reported higher losses in three consecutive years despite quadrupling sales. It’s hard to be profitable when music-rights holders collect more than 75¢ on every dollar that comes in.
Investors weighing whether to bet on Spotify need only look at the chorus of predecessors that tried and failed to meet the same challenges.
Pandora Media Inc. hasn’t been profitable in six years as a public company. Deezer SA, a European service once seen as a Spotify rival, called off an initial public offering in 2015.
The Stockholm-based company’s pitch to investors hinges on that word: “scale.” More than 1 billion people worldwide have their credit card information on their smartphones, and many are just waking up to the appeal of paid music services.
Spotify is the dominant player, with as many subscribers as all its competitors combined.
Like Netflix, Spotify has created an on-demand alternative universe. It knows what you listen to, when, and for how long.
It processes that data to churn out custom mixes such as Discover Weekly, a collection of songs from bands you haven’t heard and deeper cuts from those you have.
Spotify’s premade playlists account for about 30 percent of listening on the service, which gives them the power to make careers.
Irish singer-songwriter Dermot Kennedy was playing the streets of Dublin until he got on more than 500,000 personalized Discover Weekly playlists. Now he tours the world.
Yet unlike Netflix, which produces original TV shows and movies, Spotify insists it doesn’t want to make music.
It seeks to emulate another tech giant, Facebook Inc., and serve as a platform for content others create.
Spotify has also dabbled in new businesses, such as podcasts and videos, that labels don’t get a cut of.
And it encourages artists to sign with publishers, including Kobalt Music Group Ltd., which collect a smaller share of royalties. “Spotify is a good thing for the music industry,” says Willard Ahdritz, CEO of Kobalt, which represents acts such as Beck and De La Soul. “I’m embarrassed by how badly the music industry has treated Spotify.”
The bigger Spotify gets, the more critical it becomes to the music industry’s bottom line—and the more leverage it has.
It’s so important to artists that only a couple, including Jay-Z, still avoid Spotify (they don’t like that it has a free tier). Concern about the service’s growing power is pushing the industry into alliances with the tech giants that the labels normally distrust because they want a battle royal: The more rivals, the less power any one of them has.
Lucas Shaw. (2018). Spotify Saved Music. Can It Save Itself? Bloomberg Businessweek.
BRANDON ARTURO ACEVES SORROZA - 180300051