Company / division: Spotify
Spotify Puts Collaborative Playlists in Facebook Messenger (Jun 21, 2017)
Spotify has launched collaborative playlist creation in Facebook Messenger by way of an “extension” (Facebook Messenger’s apps with its app). This will allow multiple friends to work together to populate a playlist even if some of them don’t have Spotify accounts of their own. That in turn turns Spotify into something of a music layer within Facebook rather than merely a proprietary service, and once again raises the question of whether Facebook would ever want to buy Spotify outright and integrate it more tightly into the Facebook experience. Facebook has so far entirely sat out the music market, doing the odd partnership here or there but never becoming a serious player, even though social features are often touted as one of Spotify’s strengths and an important feature for music services overall (though I have to add that a survey I ran a couple of years ago suggested social features are actually well down the list of the most important features users look for). At any rate, this looks like a neat addition to Spotify’s feature set, as well as a useful integration for Facebook Messenger, and a good showcase of what’s possible in Messenger now that the original bots vision has been replaced by something a bit more realistic and focused, with all the user interface elements needed to power something like this.
Any service which becomes central enough to its users’ lives eventually has aspects which become essentially intimate to the user: what feel like private places where the user feels extremely comfortable, and where intrusions of content, ads, or other unwanted outside elements feel like a violation. I suspect users’ own playlists on Spotify feel like just such a place to its loyal users, and so the news that Spotify is testing a “Sponsored Song” ad unit in which songs are literally placed into users’ playlists should be concerning. Almost every ad-based business model eventually engages in such violations, either temporarily or permanently, because the drive is always to push the boundaries of ad load and the places where ads can show – the most valuable real estate is also often the most invasive, and each ad platform has to draw its own line between what is and isn’t acceptable in the pursuit of ad dollars. Spotify’s recently leaked full results for 2016 show that its ad-based business is loss-making even on a gross margin basis, while its subscription business is profitable on that same basis, so there’s always going to be a push to squeeze more ad revenue out of each user. I’ve recently finished a piece for Variety which will publish in the next couple of weeks in which I argue that Spotify should in fact ditch its free tier and go subscription-only, because of all the tradeoffs the ad-based business forces, especially in its relationships with labels. But these types of encroachments into what should be sacrosanct aspects of the user experience are another example of the risks of the free tier, especially relative to the small rewards – just 10% of Spotify’s revenue in 2016.
Taylor Swift’s Music Comes Back to Spotify (Jun 9, 2017)
Streaming Music Boosts Indie Label Payouts by 52% (Jun 8, 2017)
Weekly Narrative Video – Streaming is Saving Music (May 19, 2017)
This week’s Narrative Video is on the Streaming is Saving Music narrative. This narrative was in the news several times this week, with Spotify’s 2016 financials leaking, news that SiriusXM is debating a bid for Pandora, and Rhapsody’s announcement that it’s making layoffs and replacing its CEO. The reality is that streaming music is doing wonders for the music labels, but the streaming services themselves continue to struggle. And it’s worth noting that it’s paid subscription streaming specifically that’s really giving the industry a boost. The video talks through these topics and other trends in the industry, reality-checking the prevailing narrative. Subscribers can see the video on the Streaming is Saving Music page. If you’re not yet a subscriber, you can sign up for a 30-day free trial here, and you’ll get access to this video, past videos, all the latest commentary on the site, and lots more besides.
★ European Firms Including Spotify Sign Letter to EU Asking for Action Against “Gatekeepers” (May 5, 2017)
Spotify is Hiring for a Hardware Project (Apr 24, 2017)
Spotify is apparently hiring a senior hardware product manager, even though it doesn’t currently make any hardware of its own. The job listing (which is as far as I can tell no longer on the Spotify Jobs site) suggests that Spotify is looking to create a hardware product, although there are no real details about what form it might take. Predictably, the focus is music and talk content, so this is likely an audio player of some kind. The fact that Spotify has now removed the listing suggests that it probably gave a little too much away (or didn’t expect any reporters to find the listing), though the attention this is getting now may well spur just the kind of applications Spotify is looking for even without a formal listing. A move into hardware does and doesn’t make sense for Spotify. On the one hand, given the difficulty it’s had in generating a profit from music services, it might see hardware as a source of margin. But hardware is a notoriously low margin business, with single digit margins even for large scale players, and with many consumer electronics companies actually in the red frequently if not permanently. As such, coming from a standing start into what’s likely to be an established category feels like a steep uphill battle for Spotify, and I don’t rate their chances highly. To top it all off, of course, Spotify currently benefits enormously from being a device- and platform-agnostic service, which makes it appealing for other hardware vendors to integrate it. If it starts to compete with those vendors, that attitude might start to change. Also worth noting is that the company seems to be hiring people with voice technology and natural language processing skills, which may be part of the same project, but also looks like a wider initiative at Spotify.
Jay-Z quietly removes catalog from Apple Music and Spotify as Tidal continues fight for exclusives – 9to5Mac (Apr 7, 2017)
Jay-Z, one of the owners of the Tidal music service, has apparently pulled all his solo music from both Apple Music and Spotify, though without any kind of official explanation or much fanfare. In theory, it’s likely that he’s trying to reinforce one of the original value propositions of Tidal, which was that its artist-owners would provide exclusives for their music, though in practice most of the owners have continued to license their music to other streaming services, which have far bigger subscriber bases. Tidal has struggled financially, and recently got something of a lifeline from Sprint, but it may have decided that it needs more exclusives to drive interest and subscriber numbers. I’m not convinced it’s going to do all that well on that basis given that the vast majority of the global music catalogue is still available on other services, but this is yet another sign that exclusives – whether temporary or long-term – are one of the few sources of differentiation to streaming music services, whether or not that’s good for their subscribers.
Spotify Finally Readies an IPO…That’s Not an IPO – WSJ (Apr 6, 2017)
It looks like Spotify may be planning on a direct listing rather than an IPO, which could happen by the end of the year. What that means is that it would simply start listing its shares on the public markets without a formal public offering or opening up new shares for sale. That would presumably meet the IPO requirements in its latest debt agreements without the expense or other overhead associated with a traditional IPO. That, in turn, makes it look like Spotify really doesn’t want to list in traditional fashion but now has little choice but to work towards that goal, with this route as a compromise of sorts. It would presumably provide the needed liquidity for investors who wanted to sell out as well, though without the normal process there would potentially be a lot more uncertain and instability in the share price.
This statement from Spotify and one of the big three music labels confirms a report from a few weeks back, which itself made perfect sense. It’s paid streaming that’s been driving a revival in the music industry, not ad-based streaming, and as such the labels want to do what they can to foster that model. Since Spotify is simultaneously the provider with the largest paid streaming base and also offers a big ad-based service, it’s natural that the labels would want to use what leverage they have to push Spotify to differentiate its paid offering more. Spotify, in turn, needs both to sign long-term deals with the labels and reduce its royalty rates so that it can gain investor confidence ahead of an IPO. So this is a win-win, though it forces CEO Daniel Ek to compromise on a key principle he’s held to previously, which was not preferring the paid service in terms of the music library it offers. Still, we’ll likely see similar deals with the other labels, which may finally pave the way for that IPO, which is increasingly urgent for Spotify.
via The Verge
It’s impossible not to see this new Spotify show as, to put it charitably, inspired by Carpool Karaoke, especially given the role the standalone version will play in Apple Music. But kudos to Spotify for finding a new angle on the concept and making it distinctive. It’s also interesting to see hip hop as the focus here – where Carpool Karaoke crosses all genres, this show will be much narrower and therefore find a smaller but potentially more engaged and passionate audience. It’s important to note that hip hop has been a big part of the rise of streaming service, and Apple has heavily leant on hip hop in building its music service, especially when it comes to exclusives and Beats 1. I’m curious to see how each of these shows does on its respective service, especially given that James Corden, arguably the element that makes the original version of Carpool Karaoke work, won’t be a permanent feature in the Apple version.
This article seems to be the result of a push by Kobalt around its new royalty-tracking app for the artists it works with. If you don’t know Kobalt, it’s a music tech company which acts as an intermediary between artists and streaming services and helps ensure accurate tracking and payouts of royalties. It’s using the unique data it has on Spotify streaming to push its app and broader service this week, and this article picked up on some of the data about how Spotify drives listening of less-known artists and songs with its curated playlists. This sort of thing used to be the province of radio, but of course in recent years the streaming services have increasing power to make new artists, although they’ve used that in different ways, with Apple using Beats 1 radio to literally replicate the radio experience in a streaming setting, while Spotify uses its playlists feature.
via Watch what happens when Spotify gives unknown music acts a big push – Recode (you might also be interested in this episode of the Beyond Devices Podcast, in which I interviewed Ryan Wright, CMO at Kobalt)
Spotify Acquires MightyTV to Improve Ad Targeting (Mar 27, 2017)
When I saw some of the headlines about Spotify buying a company which is good at recommendations, I assumed that would be the focus of the acquisition, but it turns out that the focus is actually on improving Spotify’s ad targeting. So you won’t see better music recommendations, and if you’re a paid user you won’t see any change as a result of this buy at all. I was a Spotify subscriber for a time, but have never used the ad-based service, so I don’t know how the targeting is at this point, but if it’s anything like other online video and audio services, it could use some help, so this seems smart. But of course good targeting requires good data on users, and I’m curious to see how Spotify will improve in that department – by itself, it presumably knows relatively little about its users beyond their musical tastes, so better targeting would likely require buying in third party data to enhance its user profiles. And therein, of course, lies the inherent tension in all ad-based business models – user privacy versus effective targeting.
Spotify’s deals with the music labels have long been a barrier to achieving profitability and therefore also a major barrier to an eventual IPO, especially because many of its relationships have been operating on a very short-term basis rather than being locked in longer term. It sounds like there might finally be light at the end of the tunnel, mostly because Spotify is finally caving on perhaps the single biggest sticking point in its relationship with the labels: the differences between the paid and free versions of its service. Spotify has, in fact, steadily eroded those differences, which used to be more significant but now amount mostly to a lack of ads, while the labels have long wanted Spotify to increase the differentiation between the two as a way to push users to the paid their and therefore compensate artists at a higher rate for their music. As I argue in the Streaming is Saving Music narrative, it’s not really streaming as a whole but more narrowly paid streaming which is helping the music industry thrive at present, and so those labels have every incentive to push that tier of service. On the other hand, Spotify has used that free tier very effectively as a funnel to create eventual paid subscribers, and the labels also want Spotify to IPO so they can get a return on their investments, which is why they’re finally showing some willingness to compromise too.
via Financial Times
Spotify now has 50 million paid subscribers – The Verge (Mar 2, 2017)
Spotify keeps extending its lead as the leader of the paid streaming market, although it’s worth noting that not all those subscribers are created equal – see, for example, its recent partnership with the New York Times and many more and larger partnerships with mobile carriers. Those subscribers are all paying a lot less than the standard $10 per month rate Spotify charges standalone subscribers, and they likely make up an increasing proportion of the total. Still, it’s quite the achievement by Spotify to get to this milestone, especially its rate of growth over the past year or so. Next achievement to focus on: turning all that growth into profits, something that remains elusive.
via The Verge
Another front in the challenging streaming music differentiation war: higher-fidelity music, something Tidal and some other niche services already offer but which the big players mostly haven’t. Spotify only appears to be testing this option with customers at the moment, including a range of different prices for the upgrade ($5-10), and there’s no guarantee it launches. Obviously, higher revenue per month could expand margins, but only if Spotify doesn’t have to pay commensurately more for the content itself. And of course the portion of users who would actually pay more per month is likely to be very small as a percentage of the total.
via The Verge
It’s becoming increasingly clear that original content is going to be an important part of differentiation in the streaming music space going forward, between Spotify’s earlier video content and now several new podcasts, and Apple’s focus on Beats 1 radio and its TV shows. The difference is, of course, that Spotify has a free tier, where this original content will also be available, while Apple will restrict its TV shows to paying subscribers. For Apple, the cost isn’t that big a deal – it has a much bigger company to fund such investment – but for Spotify such additional costs will push it yet further away from profitability without any big direct revenue benefit.