FYI.

This story is over 5 years old.

Tech

Spotify Wants to Become Netflix Because No One Can Make Money Streaming Music

Spotify is the best at streaming music—why is it going to become just another player in the video streaming industry?

Spotify is the biggest music streaming service in the world. Can it make a dent in Netflix's dominance in video?

The Wall Street Journal is reporting that Spotify plans on both licensing video for streaming and working with known content creators to make original video series for Spotify as part of a new, yet-to-be-announced streaming video service.

Spotify hasn't confirmed anything yet, though Motherboard and other media outlets got invited to a mysterious announcement event on May 20. But, assuming the WSJ's normally reliable reporting is solid, does Spotify's move from music into video make any sense?

Advertisement

Right now, Spotify has roughly 15 million paid subscribers and another 45 million people who use its free service. Despite those numbers, the company isn't profitable, even though it raked in more than a billion dollars in revenue last year.

Music licenses aren't cheap, as the company has learned through tiffs with Taylor Swift and, more recently, something of a rebellion from Jay-Z and his cadre of high-profile stars who threatened to disembark for Tidal, which has thus far been a colossal flop.

Music streaming services will never, ever become profitable at this rate

Spotify's closest competitors in the streaming space, meanwhile, are Pandora, which has somewhere in the neighborhood of 3.5 million paid subscribers, and Rdio, which is believed to have less than a million paid subscribers. Pandora's user base is relatively stagnant, and Rdio is struggling to keep up. No one really knows how well Google Music is doing, but it's not going as well as Spotify. Spotify's dominance, at the moment, is absolute.

The iPhone-sized gorilla in the room, however, is Apple's looming relaunch of the Beats streaming service, which, rumor has it, is going to be announced in June. Rumor also has it that Apple is currently asking music labels to pressure Spotify into killing its free, ad-supported streaming tier—a move that is getting attention from the Federal Trade Commission.

In a November profile of Spotify, New Yorker reporter John Seabrook imagined an Apple entry into the streaming market:

Advertisement

"Apple could pose a real threat to Spotify, by pre-installing a service—iStream, maybe—on the next generation of iPhones and including the price of a subscription in the plan. Siri could be your dj. That would insure a paying user base in the hundreds of millions almost instantly, easily eclipsing Spotify's. And, since Apple makes money primarily from its hardware, it could afford to undercut Spotify on the price of a subscription—a scheme it is currently promoting to the labels."

Seabrook is right, and it appears Spotify is anxious to diversify. The glaring, obvious reason why this seems to be a good idea is the fact that video ads pay much better than audio ones. There's also the potential for cross-platform ad deals between its audio and video options.

But streaming video isn't an easy market to crack, either. There are dozens of fledgling digital-only channels and services that seemingly nobody watches (please email me if you're a Vudu user, I'd like to know that you actually exist), and Netflix has more than 57 million subscribers already. Toss in HBO, Hulu, and Amazon Prime (which itself basically leveraged cash and its user base to enter the market), and you've got something of a jam-packed marketplace. And that's not to mention YouTube, which many younger people are happy to use and is obviously a juggernaut.

Music licenses are expensive, but video licenses for top-tier stuff is in a whole separate category. Hulu just spent $160 million to get the rights to Seinfeld; FXX paid $750 million for The Simpsons. That's why it sounds like Spotify will go after well-known YouTubers, whose content will cost a fraction of those figures.

Advertisement

Video licensing fees vary wildly, and we still don't know Spotify's plans. Maybe it's just going to dabble in video as something of a side project, maybe it'll dive in completely and attempt to compete with the Netflixes of the world.

This is a company that's the best in the world at streaming music. And it's still losing money. Spotify isn't believed to have a lot of cash to throw around at the moment, but it's expecting an influx of as much as $400 million in investor money in the near future.

If it's losing money right now as the most popular music streaming option, and artists and labels are still angry, maybe Spotify's move into video suggests that music streaming, right now, just doesn't work for anybody (except the consumer). In fact, the finding of a study from last year found that music streaming services will never, ever become profitable at this rate.

Making money on video, on the other hand, seems positively easy by comparison: Netflix made $23 million last quarter, which was actually a huge disappointment and a sharp fall from where it was last year.

That said, Spotify isn't Netflix, at least not yet. If the company makes a couple mistakes with video, there's the very real possibility Apple will rule the music streaming world, and not because it fought an unfair fight or opened up its pocket strings. Instead, it'll be because Spotify stretched itself too thin and died on its own.