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I think Spotify is going to be the rare case of a platform company that will underperform it's aspirations because of the following -
Lack of pricing power
Lack of bargaining power
No real benefit from operating leverage -75c variable cost/$ revenue
Lack of pricing power
Lack of bargaining power
No real benefit from operating leverage -75c variable cost/$ revenue
Instead of emulating Netflix - Spotify is likely to pivot to the ad-supported market - FB/ Youtube are more likely the path Spotify takes to gain additional revenue sources https://www.bloomberg.com/news/articles/2020-05-05/spotify-ceo-sees-an-18-billion-opportunity-in-selling-ads?sref=ddPhBgko
Until Spotify manages to truly decentralise the grip the record labels have on majority of new releases, it is rather difficult to change the fundamentals of their business
Scrapping the DTC model says a lot - and should spook investors long term. The problem is other services continue to be platforms to distribute their content. The only way Spotify fixes this is to compensate artists for all revenue sources. That would be a lot of cash burn
Being short Spotify though is a foolish proposition. It is an attractive buyout candidate for the sheer number of MAU
Spotify needs the balance sheet of a larger parent company to really challenge dominance of Youtube and Facebook
Spotify needs the balance sheet of a larger parent company to really challenge dominance of Youtube and Facebook
The emergence of Snap, TikTok and other platforms means overall consumption and monetisation of music will soar, but Spotify etc wont be the ones to benefit.
Sony Music seems a great asset here. https://www.bloomberg.com/news/articles/2020-12-18/record-labels-reap-billion-dollar-bonanza-from-tunes-on-social-media?sref=ddPhBgko
Sony Music seems a great asset here. https://www.bloomberg.com/news/articles/2020-12-18/record-labels-reap-billion-dollar-bonanza-from-tunes-on-social-media?sref=ddPhBgko
They really are able to use their content ownership to monetise across the world, with so many different companies.
The only reason Spotify has been able to grow is by offering an ad-supported model. (Amazons bundled free product has limited catalogues - no free ad supported service)
How long till Amazon launches highly subsidised for Prime + free ad supported versions to drive engagement
How long till Amazon launches highly subsidised for Prime + free ad supported versions to drive engagement
Spotify relies on its superior playlists to drive engagement, and reduces churn. The problem is none of that benefits Spotify in a non-linear basis. There is little additional benefit for Spotify versus services whose playlist algorithms are shitty
I am extremely suspicious of Spotify's ability to scale podcasts globally - very few that are universal - much is localised and cannot scale globally.
I really fear Spotify has reached the stage where the grown-ups will shortly say -"We'll take it from here"
How can Spotify break this vicious cycle.
1) Selling itself or merging with larger entertainment conglomerate.
2) Using loss leaders like Amex and WalMart to allow them to pay for your expansion/ grab MAUs at any cost.
1) Selling itself or merging with larger entertainment conglomerate.
2) Using loss leaders like Amex and WalMart to allow them to pay for your expansion/ grab MAUs at any cost.
3) Raising $10B in capital and really challenging the majors by super-aggressive behaviour in acquiring must-have podcasts, as well as taking no cut from artists for some period to encourage artists to produce content for Spotify directly.
Even if podcasts drive better engagement and lower churn - the core business economics still suck and dont scale. Spotify is a dangerous business to own. It has no pricing power, no ability to lock in unique IP, and has competitors who dont give 2 fcks about cash flow.
