Remember Napster? Or Limewire? Shit, even Sharebear. Remember when getting music off the internet for free was a new buzz? Trawling through those old trojan-riddled UIs like you were making your way through the rubbish-strewn kitchen after whatever Saturday night’s particular bacchanal happened to be?
We’re a long way from that these days with music streaming now pretty much the all-consuming medium. Be honest, when was the last time you put on a CD? And right at the centre of that is the little engine that could: Spotify. Except, ‘could’ is a relative term, dependent on whether you care if it actually makes money. Spotify accrued a frankly staggering AUD$1.9 billion debt last year. In its recently published first quarterly earnings as a publicly traded company, it announced it was still at a loss, profit wise. How is it possible that a platform with a paid user subscription base of around 75 million (nearly double that of Pepsi-to-Spotify’s-Coke, Apple Music) is not turning a profit?
Personally, I’m a paid Spotify user: it’s a great service. I can listen to practically whatever music I want, whenever I want and at $12ish a month, that’s a bargain! Maybe too much of a bargain, in fact. Spotify’s problem is that its fundamental business model is flawed: between paying artists and paying licensing fees to labels, the margins that it runs under are skinnier than an anorexic stick insect. And after 10 years in business, it’s showing. It’s a classic story of a couple of entrepreneurs trying to run out the clock on ever-burgeoning expenses. It’ll be ok, they insist, there’s a rich untapped market to be had.
I smell bullshit. If you can’t make money with 75 million paid subscribers, do you really think 80 or 100 will make the difference? More subscribers means more infrastructure costs blah, blah, blah – look, you’re not reading Penthouse Magazine to get a financial treatise, so let’s cut to the chase. Spotify has created a need in a marketplace with an unworkable business model. It’d be like Henry Ford flogging model Ts back in the day for $100 a pop (adjusting for inflation): sure, it’d be nice, but it’s not what you’d call sustainable.
I’m reminded of the paper millionaires of the dot-com bubble. The difference is, Spotify has a valuable service that people clearly want. It's just either grossly underpriced itself or is paying far too much for licensing to labels. I intuit that Spotify’s downfall will likely be another streaming company’s sobering lesson and both licensing and subscription fees will probably be renegotiated. It’s a little sad – but don’t be surprised if the little engine that could falls right off the mountain.