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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

• mustacheemperor 9y ago
  >You will squeeze them, make them pay, just enough that they survive I believe the recently announced lawsuit, coming right before this IPO, may be a fine example of exactly what you're describing.
• crabasa 9y ago
  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.
• Exuma 9y ago
  So how do their competitors deal with this?
  • askafriend 9y ago
    They don't. 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.
    • cutcss 9y ago
      Exactly, the only realistic option Spotify has is to be bought by one of the big 3 (an exit), not an IPO.
  • Disruptive_Dave 9y ago
    Music was never intended to be a revenue generator for their competitors.
• pembrook 9y ago
  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.
  • nunez 9y ago
    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.
    • nkozyra 9y ago
      I'm confused. I think you're saying the same thing as the post you're replying to. The direction would be to own (or "create") the content. In other words, Justin Timberlake or someone with equal clout moves from Sony to Spotify Records (for lack of a better name).
      • notatoad 9y ago
        The problem with that is it creates a war for exclusives. If their competitors start doing the same thing, spotify will just end up losing a lot of their content. and personally, unless spotify continues to have the vast majority of the music i want to listen to, i won't continue being a subscriber.
        • wolco 9y ago
          But if they sign the top 30 and you listen to that kind of music you will have to subscribe. Netflicks is creating there own content which would mean spotify would need to create new bands instead of sign existing ones which most likely would fail because they are all under contract.
• bedhead 9y ago
  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.
  • mcintyre1994 9y ago
    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.
    • bedhead 9y ago
      Same reason people don't move from Amazon to Wal-Mart, or Apple to Android, or Netflix to...I don't even know what. Spotify is objectively better as a service, people love it, and we are creatures of habit. There are other factors like social and all the playlists you've created. Besides, people derive value from things based on more than price alone. You might not see why they have pricing power but the fact is they have over 60 million paying subscribers so they must be doing something right. And is the ~$10/month meaningful for any of those subscribers? Probably not at all. I mean, you're going to tell me that people line up to buy a $1,000 iPhone which costs 25% more than a previous model but perhaps an extra $2/month for Spotify (#12 app on App Store - right in between Gmail app and Uber) is going to cause an exodus? I'll take the other side of that one.
• hsod 9y ago
  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. Rap Caviar, a playlist curated by Spotify, is making music into hits: http://www.vulture.com/2017/09/spotify-rapcaviar-most-influential-playlist-in-music.html http://www.vulture.com/2017/09/spotify-rapcaviar-most-influe...
• yeukhon 9y ago
  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.
  • nofilter 9y ago
    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.
• phirschybar 9y ago
  > And Spotify has zero negotiation power here really? with their endless amount of listener history and preference data. IMHO Spotify has gained the upper hand.
  • JonFish85 9y ago
    Google and Apple have that too -- YouTube and iTunes have been around longer than Spotify, and likely have similar data sets.
  • bogomipz 9y ago
    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.
• gnopgnip 9y ago
  What about compulsory licensing?
• spsgtn 9y ago
  Agree. I recently learned that this is called "Bargaining Power of Suppliers" from 25iq.com blog by Tren Griffin. His post on MoviePass is superb.
• Reeeee 9y ago
  Keep in mind that Universal, Sony, and Warner all own a chunk of Spotify.
  • bogomipz 9y ago
    They weren't investors. They were given a small ownership stake as an incentive to agree to license their content initially.
• awad 9y ago
  In a way, these dynamics remind me of the movie theater business. Here's a good read: https://25iq.com/2017/12/30/moviepass-premature-scaling/ 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?
• vetrom 9y ago
  Rdio? Licensing murdered the business, really.
• dglass 9y ago
  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.
• TheArcane 9y ago
  > People will switch to Apple Music, Amazon PrimeMusic, Tidal or any other service quickly. How do these other services operate in contrast?
  • NDT 9y ago
    They are not free. This is the THE reason I use Spotify over any others.