Spotify vs Apple - The Final Countdown?

“The perfect music should always be just a touch away” said Spotify CEO Daniel Ek at a news conference last week. So if that’s the case, as the world’s largest music-streaming service, why are they still losing ‘Money, Money, Money’ and having to adapt their offering to include video?

Since their launch 4 years ago, Spotify has been a ‘Revelation’ in the 'Music' industry by offering an ‘all-you-can-eat’ smorgasbord of music for a one-off monthly fee or as an ad-based free alternative. To date, they have amassed a user base of around 60 million with around 45 million adopting the free version and the remaining 15 million signed up to the Premium paid version. All of which has changed the dynamic of music listening ‘Forever’ - as digital downloads continue to decline, streaming has soared by 54% in the past year alone.

With over US $1 billion in revenue and a company valuation of US $ 8 billion you would guess that their business was pretty lucrative right? Wrong. The reality is that Spotify is not profitable. And their losses are actually increasing. I wonder if they will ever get ‘Back in Black’ ?

‘Why’ are they losing money then? Well it’s mainly due to the onerous costs of the content / royalties that they have to pay to the publishers (estimated to be in the region of 70% of it’s revenue). And the ‘Problem’ is, that no matter how huge their user base grows that ratio is unlikely to change dramatically. ‘You Can’t Always Get What You Want’ right?

It has also spawned a whole host of platforms who were ‘Born This Way’ such as Deezer, (Bohemian) Rhapsody, Pandora, Rdio and Tidal to name but a few. However, the one they need really worry about.? Apple. Last year they paid $ US 3 billion for Beats, the premium headphone and streaming business. So far there has only been the ‘Sound of Silence’ about their plans for Beats. The industry has been ‘Looking for Clues’ but so far we have little idea as to what it will look (or should that be sound) like. What we do know is that it is likely to be a ‘Monster.’ Apple already have details of over 800 million credit cards on file from their existing iTunes customer base. That 'Alone' gives them the capability to entirely reshape the streaming music landscape again if they can come up with an effective new ‘Model.’ One possible theory is that Apple could use music as a loss leader to ‘Drive’ sales of their hardware. ‘Imagine’ that - all of your music included with the purchase of an iPhone or iPad? It’s like ‘Money for Nothing.’ And your music (and chips) for free? 

In ‘Anticipation’ of any potential move by Apple, Spotify have evidently decided to diversify by adding video and podcasts to their armoury of streamed services with a new offering called Spotify Now. To all intents and purposes, Spotify wants to become the entertainment destination for ’24 Hour Party People’ – essentially a central conduit for all ‘That’s Entertainment’ based content which consumers want on their mobile device. And they have decided to ‘Hook Up’ with some major video content suppliers (eg. BBC, NBC, ESPN, Comedy Central etc.) to deliver the video element of their offering. ‘God Only Knows’ if that group of content providers can ‘Help!’ deliver the quality content that their consumers are seeking.

But by entering the domain of video, they are ‘Opening’ themselves up to a whole new set of competitors. Not least, the colossal Google and their video platform YouTube. It will be difficult to ‘Beat It.’ Not only that but it seems everyone is jumping on the video bandwagon of late, so they will also have to contend with other tech behemoths like Facebook and Snapchat (via Discover) plus more established platforms like Hulu and Roku. 

They also announced a raft of consumer focused partnership deals to enhance their business. For example they have penned a deal with Nike to link their running app with Spotify playlists (the music choices can automatically adapt to your running speed). In addition, they have signed up with Starbucks who are going to ‘Stop’ selling CD’s in store and instead will offer their 10 million Starbucks loyalty program members a ‘Reward’ to redeem against free drinks for simply listening to specially curated music playlists. 'At the End of the Line' we need to revisit the original premise of this piece. Spotify is ostensibly a music service - as Daniel Ek himself stated this week:

we are a technology company by design, but we are really a music company at heart”

But if that’s the case then they have clearly recognised that there are limitations to this in ‘The Future’ by being single-mindedly focused on being a music platform. Diversify or die. But on the ‘The Other Side’ whilst they want to provide ‘Common People’ with everything, we all have our own unique requirements. Anything extraneous to that becomes unnecessary background noise which could cause a ‘State of Confusion’ with potential new recruits and equally may alienate existing users who just want it for the their tunes. As Dan Cryan, analyst at researcher IHS, puts it:

On one hand, you're going mass-market by giving consumers more options. But if you make the core product harder to use, then you actually begin to remove the reason why a lot of your users are there in the first place"

Hmm, could be a case of ‘Video Killed the Radio Star?’

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