Spotify Needs to Profit From a Music Revolution


Music is important to the wider economy. It was one of the first industries disrupted by the internet, and the first to be repackaged as all-you-can-eat instead of all-you-can-eat. Napster shut down 20 years before him, its nemesis Metallica adopted the streaming platform more than a decade before him, and Spotify Technology SA subscription prices have hovered around $9.99 for years. .

It’s time to think about the possibility of radical change. For one thing, if this is the end of music, it’s a sad state of affairs. The streaming economy is overwhelmingly unequal. It’s great not only for the most listened-to artists like Taylor Swift and Ed Sheeran, but also for consumers and labels and rights holders who have identified how to live off their royalties. Not very good.

It’s also not good for shareholders of standalone music streaming platforms like Spotify or Deezer SA. Platforms also have limited bargaining power with record labels and rights holders intent on maximizing the value of hit songs and star artists. Spotify has never turned a profit for the year. As music rights expert Phil Byrd recently put it, it seems to be in “perpetual startup mode.”

Inflation and a slowing economy have eaten into growth, with MIDiA Research analyst Mark Mulligan estimating that global streaming revenue could have increased by just 7% in 2022. For audiobooks, what are the options to exit startup mode?

One is to raise prices, as Apple recently did. Music is very valuable and paying $10 a month makes him a few cents an hour. Former Spotify economist Will Page says he expects the price of a glass of Malbec to double from 2009 to 2021, even though he hasn’t seen much improvement for consumers. I pointed out that it became Meanwhile, despite the explosion in depth, personalization, and algorithmic depth of his curation of the music library, the price of the songs remained the same.

Higher prices certainly expand the pie across the economy. It might even create incentives to change the unequal way subscription fees flow into the overall pot in favor of the biggest artists, regardless of what individual subscribers play.

But Spotify’s share price halved last year shows the move is risky. No one can predict the impact of price increases on demand in a fragile economy. We are nearing saturation and platforms can only add subscribers by stealing from others. is against

Spotify appears to be pursuing an alternative course of subverting its own core product by folding into a new kind of technology offering marketed to investors as the “Spotify Machine.” Co-founder Daniel Ek’s vision is to create a platform for everything from music to podcasts to audiobooks. More products lock in more users with higher subscription prices, coupled with increased advertising revenue coupled with more sophisticated algorithms and payment mechanisms. The plan includes some jaw-dropping goals, including $100 billion in annual sales over the next decade, on par with Citigroup and Walmart.

But even here the risks are higher. The story of various audio streams converging to increase profit margins will take a long time to bear fruit. Analysts at Jefferies expect Spotify’s gross margin to be below his 2021 level through 2024. Audiobooks also look like another long-term journey. If you do, the potential for surprises becomes apparent.

There is even greater potential: artificial intelligence. ChatGPT and tools like it have already been dealt with by lawsuits and boycotts the way Napster was dealt with by Metallica. It’s only a matter of time before AI-generated music starts encroaching on music platforms — you can listen to AI-assisted music on Spotify — with the rise of auto-tuned vocal and drum loops in pop music , allowing machines to manipulate humans more easily. To imitate.

With all the changes on the horizon, AI can derail all kinds of long-term plans. Record labels have already accused their star artists of undermining market share (and thus their bargaining power) by flooding platforms like Spotify with flotsam and jetsam and accepting all kinds of independently distributed music. I’m here. AI-generated music will change the industry, especially if it doesn’t require payments to artists or labels.

This probably wasn’t what the designers of the post-Napster revolution had in mind. This means governments and regulators will have to watch closely what happens to the music industry. Given that a third of his music-related jobs have been lost during the pandemic in the UK, another wave of disruption is set to hit. When Spotify puts its machine on full blast and the tech hands down on literal metal his machine music, it’s going to be a hoot.

Bloomberg Opinion Details:

• Traders cannot predict the market.Can you see their faces?: Parmie Olson

• Can technology replace Taylor Swift?: Lara Williams

• Beware of crypto billionaires who brag about audits: Lionel Laurent

This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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