What Spotify Wants to Be
Reading Time: 7 minutesSpotify’s Revealing Year in Review, 2023 was a tough year for Spotify. Will its future be any brighter?, Spotify wants to be a place for creation and discovery, not just for music.
If Spotify were composing a song about the past few years, it would not be up-tempo pop. The company has gone through multimillion-dollar acquisitions, had a series of controversies, and struggled to make money. It turned a surprise profit in the third quarter of this year, but then announced another round of layoffs—the third one since January (1,500 jobs will be axed). Then, just days after the layoff news, the company’s CFO announced that he would be leaving in March. In a statement Dec. 7, Spotify CEO Daniel Ek said, ‘We’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences.’
On Sunday’s episode of What Next: TBD, I spoke with Bloomberg reporter Ashley Carman about a different Spotify Wrapped—the company itself, its habits, its ambitions, its embarrassments, and how the next year is going to sound. Our conversation has been edited and condensed for clarity.
Lizzie O’Leary: What is Spotify’s origin story?
Ashley Carman: Spotify came about during a time when the music industry was essentially decimated by piracy. Everyone was downloading music illegally and nobody was buying albums. Daniel Ek, Spotify’s co-founder, had the idea that people might be willing to pay for music if they could stream it. They could start as free users with ads, but then eventually pay and have an ad-free experience. Ek did exactly that, and Spotify changed the music industry and brought it into the streaming era, which really didn’t exist when it started.
Who would you describe as Spotify’s major competitors over the years?
The big tech services: Amazon Music, Apple Music, and YouTube Music. YouTube Music is probably the biggest competitor, both on the music side but also on the podcast side, simply because of the fact that so many podcasters record their shows on video and put them on YouTube and are able to really effectively monetize them.
How’s the music streaming side of the business doing now?
I think the music streaming side of the business is doing fine. Spotify was always a music company. They are the biggest streaming service, and they continue to grow, quarter over quarter, as far as monthly average users go. Right now they’re trying not to lose people. They want to keep growing.
Around the time Spotify went public, the decision was made to get into podcasting. How and why did they make that decision?
They were always known as a music streaming service. However, whenever someone streams a song, Spotify has to pay a significant chunk of the money they make from the users to the rights holders. This meant that they were having to give away a significant portion of their revenue.
With podcasts, that’s not the case. Spotify doesn’t have to pay the podcast host or creator every time someone streams it. So, getting into podcasts had different economics and also diversified the business away from music. It gave the company an opportunity to try something new and convert music listeners into podcast listeners. Spotify also saw an opportunity in podcast ad dollars, so they acquired a bunch of companies, including podcast ad tech companies, both in an effort to grow their own original podcasts and to help them monetize third-party podcasts and individual creators’ shows.
It seemed like there were a couple of different arms of their podcasting strategy. There are the big names, like Joe Rogan and Alex Cooper, and then there’s the 2019 purchase of Gimlet and Anchor. That’s $340 million. It seemed like they were really going hardcore on podcasting. What worked for them and what didn’t?
Spotify doesn’t own the licensed shows: Joe Rogan, Alex Cooper, Dax Shepard. They just pay to license them, then exclusively monetize them by selling ads. As far as whether that specific strategy worked, I would say broadly yes, but I don’t know if the ‘exclusives’ part of it (where it’s exclusive to Spotify itself) worked. Spotify has, in some cases, put those shows out widely. So Dax Shepard’s show is available outside of Spotify now, and an audio version of Emma Chamberlain’s show is also available outside of Spotify.
When it comes to acquiring individual studios, like Gimlet, the Ringer, and Parcast, Spotify, in a lot of cases, really backtracked on that. Gimlet and Parcast lost a lot of shows over the past year. Just recently, I broke the news that two really critically acclaimed Gimlet shows, Heavyweight and Stolen, were being canceled by Spotify. So the originals, I think, were a bit more of a struggle.
Spotify puts so much money into podcasting. How would you describe the hope behind that, versus the reality?
Spotify spent over $1 billion to get into podcasting, and I think their hope was, first, that they would become the dominant listening platform for podcasts. Second, that they would have their own originals business [shows that Spotify creates in-house] that would drive people to their platform and allow them to build up ad revenue around those shows. On Spotify, when you’re a premium subscriber, you don’t hear ads on music, but you still hear podcast ads. This was one way they’ve tried to build a business outside of music.
But Spotify has made major changes to its podcasting division this year, especially to the originals business. More than a dozen shows have been canceled, and that includes award-winning ones. Hundreds of people lost jobs. Six hundred people were let go across the company in January, 200 people in the podcasting shop in June. Then came this week’s announcement, another company-wide layoff of 1,500 people. Plus, Spotify lost $462 million in the first nine months of the year, though it did make a surprise profit in the third quarter. Were you expecting this latest round of layoffs?
Spotify has ambitious goals. They need to be profitable. To get there, they can raise prices, which they have done, and they can cut costs, which they have also done, but now they have to be even more aggressive.
What does Spotify want to be? How does it characterize what kind of platform it is?
Spotify wants to be a creator platform. I think they eventually want to be a formidable competitor to YouTube and YouTube Music—and potentially even TikTok, depending on how TikTok develops its streaming offerings in the future. YouTube has all the eyeballs: Everyone is watching things on YouTube or listening on YouTube Music. They have monetization worked out. Lots of advertisers use Google and advertise on YouTube, and for creators, it’s a no-brainer: If you’re a creator, you’re going to put your content on YouTube because you can so easily monetize it. Spotify wants that. Spotify wants people to put more of their content on the platform. They want to be able to very easily monetize it and take a cut of it. They really want to be a place where people spend time and have to subscribe to spend time there.
It sounds like they want to have a Spotify equivalent of YouTubers—’Spotifyers,’ or something better-sounding.
It could even be YouTubers. Emma Chamberlain is a podcaster they made a deal with, but she’s originally a YouTuber. Spotify put some of her videos exclusively on Spotify. So, in that way, yes, they have more directly come for YouTube, but I do wonder if maybe they even believe that it doesn’t have to be one or the other. It’s just that they want to be a place for creators to feel they need to participate in Spotify’s world.
That creates an interesting tension, right? If you are a platform for creators, are you just that? Are you a platform, or do you end up being enmeshed with the people who are on your platform? Joe Rogan, for example. In response to some of the things that come out of his mouth, Daniel Ek has basically said, ‘Hey, man, we just distribute this podcast.’ How does Spotify walk that line?
The Rogan situation was a tough time for the company. The long story short is, Neil Young pulled his music because he said that Joe Rogan was spreading COVID-19 misinformation. Spotify essentially sided with Rogan, and they did not stop working with Rogan. They continued to pay him and work with him and monetize his show and put it out there. Spotify essentially wanted to be a neutral platform, and I think that debate is ongoing, but as they cut back on their own original programming, I do think they are more and more turning into a distribution and monetization arm for creators rather than a news organization or a media publishing organization like they were at that time.
Where does TikTok—and the specter of TikTok Music that’s floating out there—fit into all of this?
TikTok is a little spooky to Spotify, because TikTok is very much a Gen Z platform, and it drives culture in music. Over the past few years, it’s where lots of people discover songs, artists, and sounds. When they do that on TikTok, they might eventually go to Spotify to listen to those songs. But what’s terrifying for Spotify is the possibility that TikTok is where the culture’s happening and Spotify is just the place you go after you’ve already been part of the culture. Spotify wants to be more of a driver of the culture, which is what podcasts could do for them.
TikTok has presented this Gen Z struggle for Spotify. TikTok did launch, in certain territories, TikTok Music, which is their own page streaming service, but they haven’t expanded it much since that initial rollout. They just launched a button that allows people to save sounds they hear to their music app—so, Spotify. They have an integration with Spotify. Maybe this won’t end up being the biggest deal, but I do think that they are playing in the same sandbox.
When you look ahead to the next year, what are you going to be watching?
I am really going to be watching the audiobooks rollout. It’s very exciting to me that Spotify is moving into a new media format. Spotify’s now offering 15 hours of listening included as part of your subscription for premium subscribers in the U.S., the U.K., and, I think, Australia. This is a really different way for audiobooks to be consumed, at least in the U.S. It’s going to be interesting to see: Will this actually move the needle for publishers? Will people actually listen to new audiobooks? Will they take Spotify up on this offer? Will they upgrade and get additional hours? Will audiobooks and writing end up being more like music, where people are compensated like in the streaming world?
You mentioned a couple of times this ambition to be the culture, to create the culture. What does that mean to Spotify? What would that look like if they succeeded?
It means discovery. Discover Weekly, when it came out, was such a big deal. It was revolutionary that you could have a playlist custom-made for you with all these songs that you probably really liked. Then TikTok came around with the endless scroll, and people started discovering music and sounds that way, and we’ve seen Spotify try to replicate that a little bit in its own app. It recently redesigned the app, where it autoplays videos or sounds and songs, and in that way, I think, Spotify is trying to claw some of that back and be the place where discovery of culture, discovery of music, and discovery of podcasts happens.
Reference: https://slate.com/technology/2023/12/spotify-layoffs-future-unwrapped-youtube-tiktok.html
Ref: slate
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