
Lessons from Spotify - prostoalex
https://stratechery.com/2018/lessons-from-spotify/
======
MBlume
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.

~~~
tdb7893
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
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
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

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TekMol
The authors central point seems to be that Spoitify is at the mercy of the
record labels. Because the labels have the music. And that Spotify can't cut
them out because they don't have enough users to attract artists:

    
    
        Notice how little power Spotify and Apple Music
        have; neither has a sufficient user base to
        attract suppliers (artists)
    

But he does not explain his reasoning behind it. How big is their user base?
Why is that not big enough? And how big would it have to be to attract
artists?

~~~
WisNorCan
People often use Netflix as a parallel to reason about Spotify and
circumventing labels.

But it is a bad comparison. Start with the consumer and work back.

Consumers expect their music streaming service to have any song they are
looking for. For video they don’t have the same expectation.

Music has a greater element of “I want to listen to this particular song/album
because it is my favorite”. Video is more about “I want to find something new
to watch”.

That fundamentally changes the value of having a complete catalog in music and
puts Spotify in a weaker spot relative to Netflix.

~~~
nerdponx
_For video they don’t have the same expectation._

I think this has more to do with the economics of pirating movies versus
music.

When Netflix started, people were not used to torrenting (or Napster-ing, or
Kazaa-ing, etc) movies. They were already at the mercy of Blockbuster, so
being at the mercy of Netflix instead wasn't that big a deal. Pirating movies
is more popular today, but people are still generally OK with having a limited
movie selection.

Whereas by the time iTunes Music rolled around, people were already
comfortable with having the whole world of music at their fingertips. You
can't undo something like that easily. So the only way forward has been to try
to have everything.

Perhaps the most interesting part about all this is that there was never (to
my knowledge) such a thing as a store where you could rent records, tapes, or
CDs -- Blockbuster for music.

~~~
stdbrouw
> Perhaps the most interesting part about all this is that there was never (to
> my knowledge) such a thing as a store where you could rent records, tapes,
> or CDs -- Blockbuster for music.

Not a store, but you can rent records, tapes and CDs at most libraries.

~~~
tzahola
Theoretically, yes. But I’ve never seen anyone actually do it.

~~~
plussed_reader
Maybe you should get out more?

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jayzee
Spotify vs netflix

\- People very very infrequently watch the same movie/tv show twice.

\- People very very frequently listen to the same song

therefore

\- The past is important for songs since at any point in time there are more
songs in the past that you want to listen than new songs that have been just
released

\- The future is more important for movies since you are looking fwd to
watching something new

therefore

Netflix >>> Spotify

~~~
soared
> People very very infrequently watch the same movie/tv show twice.

While probably true now, this will change over time. Most people I know
(mid/low 20s) use netflix as a replacement for the radio - putting on The
Office / parks and rec just as background noise while doing other things.
Those shows have been on repeat in my house everyday for a few years.

------
Distant_horizon
Spotify's ad studio (and sales team) deserve more acknowledgement. I don't pay
for a Premium account, but I'm a daily user. I find the ads tolerable, the
voices relevant. And they dont interfere with my enjoyment of the platform.

In contrast, the ridiculous ads on Pandora is what sent me to Spotify. I can
only assume Pandora has low inventory, because I'm getting ads for a tractor
company 30 miles away. I'm a Sr dev, listening to Drake, and I don't have a
lawn or a farm.

~~~
dullgiulio
As far as I have understood, that's not how it works economically.

Spotify is trying hard to make free users upgrade to premium, while enlarging
the user base. I don't think they have any interest in playing real ads
(except some music-related ones that maybe keep the labels a bit more quiet);
that's the reason you get tolerable ads. But in the longer term, Spotify might
decide to kill the free service (or just make it a timed trial.)

~~~
earenndil
> Spotify might decide to kill the free service (or just make it a timed
> trial.)

I doubt this will happen. A lot of teenagers right now have only have a free
spotify subscription because they don't have any money, and spotify probably
wants to keep them as subscribers so in the future they do become customers.

~~~
kn0where
Count me as a single data point for the example of a teenager switching to
paid Spotify as a college student (albeit discounted to half-price). When I
graduate I'll probably keep paying, at the full $10/month. Apple Music is
tempting for Siri integration, and Amazon and Google are certainly
alternatives, but I'd rather stick with the cross-platform "underdog" that
doesn't lock me into using iTunes.

Also, screw Apple Music and Tidal for "exclusives."

~~~
earenndil
Not disagreeing with your point, but just because spotify isn't tied to an
already-huge company doesn't make them more of an underdog. They already have
a much larger subsriber-base than all the other music services, and it's clear
to me from seeing the way people act and their choices in what they do that,
similar to netflix, it's bound to succeed despite all the armchair analysists
pointing to graphs with lines pointing down.

Also, I'm curious, what issue do you take with exclusives? Do you also find
fault in netflix, hulu, and amazon creating media and making it exclusive to
their service?

------
thehnguy
Ben Thompson delivers again. I love reading this guy’s stuff. I’m not saying
it’s earth shattering, but it’s accessible, well thought out, and leave
feeling much more informed.

~~~
shostack
His exponent podcast is excellent as well. Just wish it was available on
Google Play Music which it is not for some odd reason.

------
thisisit
> Making matters worse, the U.S. Copyright Royalty Board just increased the
> amount to be paid out to songwriters; Spotify said the change isn’t
> material, but it certainly isn’t in the right direction either.

I can be wrong but wouldn't something like this affect Spotify's bottom line
in short term already?

That said, the situation might be even worse. As pointed by the top post from
an earlier Spotify IPO discussion, record companies might squeeze Spotify even
more if it starts becoming profitable:

[https://news.ycombinator.com/item?id=16063502](https://news.ycombinator.com/item?id=16063502)

------
daryltan2007
It’s an interesting article. I think it overplays the power of the record
labels though. If Spotify increases its user base substantially enough, then
bargaining power goes to them in the Long run. Record labels can’t make money
selling directly to the consumer anymore.

Secondly, I don’t think the cost is a problem. if it IPOs, the proceeds will
be used to fund (my guesss) customer acquisition which would be in line with
their strategy of incurring larger costs now in return for future gain.

~~~
Sammi
What can Spotify do if labels pull their catalog? It needs their music.

Labels on the other hand have other places to go. Labels have options, Spotify
doesn't. It's not hard to see who has more bargaining power.

------
dalbasal
This is a little tangental, but tangental to a couple of the themes here...

One tangent is that I'm totally dissapointed with the dominant "content
aggregators" like kindle, netflix, spotify, apple and such.

Amazon wrapped up the ebook market quick. But, even though it's a
revolutionary change in medium, very little changed.

The book publishing industry was ripe for change. Physical publishing
gradually got less expensive and less risky. From physical typesetting to
short run modern printing. ebooks bring that capital cost down to $0. In
response, publishers maintained their "venture capital" status with advances
(money upfront to authors) and (supposedly) "marketing," the impression that a
publisher can make a book sell.

The point on publishers' marketing importance is dubious, especially in the
context of amazon & ebooks.

Advances, editing and the remaining jobs publishers do... The value/cost does
not add up to 80-90% of the revenue. Typical royalty rates (5%-20%) are
_absurd_. Amazon could have disrupted this, easily. It would have completeley
changed the industry, and made writing a viable living for many more people,
producing many more books.

Also, mediums. Magazines famously spawned whole new formats and genres. So did
things like paperbacks, pamphlets and other medium changes. Serials and shorts
stories. Comic books and gossip collumns. The internet gave us blogs, tweets,
infographics and PG essays.

Ebooks gave us digital versions of paper books. The impact has been minimal.

It is as if amazon did their very best to revolutionize books, but change as
little as possible.

Spotify did something similar, maintaining and reinforcing the norms of
artist-label dynamics, even though they are completely unsuited to the modern
industry.

My second tanget is a point on the cost that _does_ scale linearly: customer
acquisition costs. This generally means FB & Google. They started as free
_discovery_ (customer acquisition from the customers' perspective) and became
paid customer acquisition tools.

Today, they are mostly paid customer acquisition tools. This means (a) that
these guys charge a toll on certain sectors and (b) that ability to pay this
toll is a major factor of success.

It sucks to be in a market with head-t-head competition. These markets are
efficient (especially on adwords) and the price of acuiring a customer tends
to stabilze near marginal revenue per customer. IE, whatever your margin is on
customer, it goes mostly to google.

If you earn less per customer (per impression, more accurately) than the
competition, these channels are closed to you. This results in a uniformity of
business models. Examples are many, but think of all the subscription food
delivery, maid services, laundry, etc.

If you are offering one-off housecleaning and your competition is selling
subscriptions, they will probably outbid you on adwords. You will need to
change to a subscription model to stay on adwords.

Free discovery channels (eg, HN) have (had?) a totally different dynamic then
the paid ones. I think this is an important thing to realize, if you're
starting a something these days.

~~~
lmm
> Ebooks gave us digital versions of paper books. The impact has been minimal.

Eh maybe. These days I read a fair number of what I assume are self-published-
on-amazon ebooks, as recommended to me by amazon's system. I assume the
publisher has been completely cut out, and the length expectations have
certainly changed (serials of more shorter books). Maybe people are still
figuring out the medium. If you look at the early days of television you'll
see "television plays" which at first were literally theatrical actors
performing a play to the camera, and these plays were limited to a maximum of
one rebroadcast and destroyed after by agreement with the actors' union.
Television only became its own distinct medium (with the corresponding
economic changes) over time.

~~~
dalbasal
I was generalizing, of course. Your experience may be the exception or
(hopefully) the vanguard.

Self-published books with non-traditional page counts, at wildly different
price points, discovered via recomendation engines is exactly the kind of
thing I was hoping to see.

From what I can tell though, this is still a marginal phenomynon, less
impactful to the median author than twitter or blogging or somesuch. I don't
think this is a coincidence. Amazon has allowed for it, but not really pushed
on it, or gambled on it.

When kindles came out, I read a Seth Godin (blogger/writer) comment that
eachone should have shipped with 1,000 books, including his. He'd have agreed,
in order to get to readers (with his back-catalogue).

Maybe (hopefully) you're right on the timing. Maybe we're just discovering the
medium. But, (a) I think things move faster these days, and 10 years should
have been sufficient. (b) amazon controls most of the levers, and I think it
won't happen unless they decide that it happens.

------
1337biz
Is there anyone similar to Thompson who has such an interesting take on
business topics? I have been looking for a while but this is really hard to
find!

~~~
lambda_lover
More finance than business, but I really enjoy Matt Levine (he writes for
Bloomberg). Even though his articles are technically finance there's enough
tech and business analysis in there that you don't have to be a finance nerd
to find good content. And he publishes Money Stuff most weekdays!

[https://www.bloomberg.com/view/topics/money-
stuff](https://www.bloomberg.com/view/topics/money-stuff)

~~~
exolymph
Matt Levine is also funny as hell, his columns are worth it for that alone.

------
subpar
For another (less business, more aesthetic) perspective on Spotify's impact on
how we listen to and make music, check out:
[https://thebaffler.com/salvos/the-problem-with-muzak-
pelly](https://thebaffler.com/salvos/the-problem-with-muzak-pelly)

------
bernardlunn
Ben Thompson is an original thinker, usually worth reading

