Spotify: Too Late to Become the Netflix Challenger It Could Have Been?

Daniel Ek Spotify
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When Spotify and Hulu announced a joint effort this week to sell their streaming services at a combined discount rate to select markets, it was touted as a savvy marriage of audio and video content. But the partnership points up what has become a glaring vulnerability for the streaming service: Spotify wouldn’t need Hulu if it already had a video library that could stand on its own.

The fact that it doesn’t goes a long way of explaining a shift CEO Daniel Ek recently made, tapping Disney’s Courtney Holt to lead original video and podcast programming just days after disclosing the departure of the division’s previous overseer, Tom Calderone.

After a few years of modest efforts, Spotify has failed to distinguish itself as a source for the kind of video content that could increase the time its massive global user base spends on Spotify.

That’s a damn shame when you consider Spotify has, as of last publicized count in July, 60 million paying subscribers, a subset of 140 million total active users. That is an astonishing amount of people to not have already done more to diversify and enhance an app that is essentially a one-trick pony. Spotify is an enormously compelling service, but strictly because of the wealth of music available to stream for a reasonable price in a nicely designed app.

But I’m a daily Spotify user, and not only have I never used the video or podcasts, I don’t recall even stumbling upon them when using the app. Though faintly aware of various modest efforts in recent years to introduce music-themed shows and podcasts, I never heard an iota of buzz to remind me to check them out.

What little we know so far about Holt’s strategy is Spotify is going to put more emphasis on pushing video through playlists, which I use all the time and yet somehow never even realized they had anything but audio content inside them.

But as rapidly growing Spotify rival Apple Music understood quickly, a music collection should be just the foundation on which other content offerings are layered in order not just to retain subscribers but grow that base. Because Spotify is surrounded by competitors with sizable catalogs of their own, it’s all the more imperative that it brings more than just that core audio offering to the table.

What’s worse is that there’s a full-scale content arms race playing out right now from Apple to Facebook to Amazon, but Spotify is nowhere in that conversation even though it has a mighty platform of its own. Spotify should have had a head start; instead, it’s forced to play catch up.

What makes it especially frustrating to see such a great potential platform for subscription-video programming go to waste is that it is the very thing that could have provided a sounder strategic path than the one currently being pursued by many media companies. Rather than leverage an existing scaled base with a strong brand among content-hungry users willing to pay, they are each pursuing their own paths to OTT despite lacking the know-how.

Take Disney, for instance, which began to invest heavily in its own OTT efforts last month. CEO Bob Iger clearly signaled to the marketplace then, and this week again, that his company needed to take a stronger hand in its distribution capabilities, by taking a controlling stake in Bamtech, which will power its first direct-to-consumer efforts for ESPN and Disney films.

It’s going to be a fascinating strategy to see unfold because as formidable as Disney has been in just about every aspect of its business, distribution is not its strong suit. And as powerful as its brands will be in driving consumer interest in its OTT offerings, Disney will essentially be starting from scratch in a bid to establish a global subscriber VOD base that took Netflix years to grow to 100 million.

Given that sizable lead, wouldn’t the best play of all be to launch content off an existing massive subscriber base like Spotify’s? What if an acquisition or partnership allowed the company to bolt on someone else’s content capabilities like Disney’s?

Given its last valuation in May ahead of an expected direct listing in 2018 pegged Spotify at $12 billion, that would be a pretty expensive price for Iger, who may regret not pouncing on the streaming service years ago.

But he is clearly determined to orchestrate the kind of masterstroke that would cement an already impressive legacy. Maybe Spotify is still the right move.

Or maybe the folks over at Viacom, where MTV is currently languishing, are looking over at Spotify and seeing that as just the play to reinvigorate its once mighty music brand. 21st Century Fox, which hasn’t been nearly as aggressive as Disney in reorienting its own content-heavy portfolio for this new digital age, could be the one to make the play here, too.

Here we are in a moment where every TV brand is going their own way with a direct-to-consumer strategy, building something they would have probably been better off distributing from an existing subscriber-friendly platform than starting from scratch. Even in success these D-to-C rollouts will eventually cannibalize each other because few consumers are going to pay for too many streaming services. Spotify might have been the perfect place to aggregate these efforts and offer some combinations.

Spotify has plenty to be proud of for the growth it has achieved in recent years. But when you consider what a media conglomerate’s content capabilities could have brought to the table when married to such a powerful platform, it’s entirely possible this business could have scaled entirely higher heights, competitive even with someone like Netflix if a real content strategy had come together much quicker. Maybe it’s not too late to try.

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    1. Bob Wager says:

      I like Spotify. They can improve the app and their content breadth and depth, but it is a smooth runner. I have Apple Music app for Android and it is the single-most crappy app to run streaming content. It locks up the phone, skips content to stream dead “air” and so many other issues that the massive content they offer is only, barely, enough to justify using it. Perhaps they think they are delivering an app that ALL Androids users are used to. Sorry, that ain’t so. Getting back. To partner with HULU, Spotify gets into bed with a streamer that hammers paid customers/subscribers, with huge quantities of ads. not just a 15-second ad, but I have suffered through nearly 5 minutes of them in the middle of a 26-minute show. I don’t think they offer enough original, or other, content to justify this. I only keep it for my kid’s amusement. With the popularity of Spotify and their subs base, they need to just go at it themselves. Make the portal to their content broader. I had no idea that they did video, too. I use only the Android app and see nothing on this content. They need to self-promote and adjust their app to show they actually provide this content.

    2. jhs39 says:

      This article ignores a key issue with a streaming service like Spotify that would make it difficult to complete with a service run by the likes of Google or Apple. Music streaming services operate under very onerous terms from the record companies that don’t make them especially profitable regardless of the subscriber base or amount of revenue generated. On top of that in order to get music from any major labels a service like Spotify has to sign a non-disclosure agreement so nobody but the labels themselves know what revenue is generated from specific releases. The artists themselves don’t know and go by what they are told by their labels. This should have been obvious to anyone when Taylor Swift removed her music from Spotify Her label claimed the revenue generated by her music from the streaming site was negligible. Spotify was legally barred from directly responding to the claim but did say an artist “like” Taylor Swift would generate revenue that was tens of millions more than her label claimed. Since Spotify gets its revenue from one business (streaming music) and almost all that money goes to the record labels there isn’t enough left over to expand into original video content in anything resembling a significant way.

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