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Jan 25 2023

🔵 Breaking down Spotify's flawed strategies and overspends

The latest news from the music and tech industries
Hi there - 

it was inevitable that after Spotify announced layoffs, analysis of why those redundancies are happening would take place. Hats off to Music Business Worldwide though, who have picked apart all manner of stats - all of which leave you wondering what on earth is going on at the streaming giant. 

A few that leapt out at me: 
  • Over $1bn spent on podcasting in the last 3 years 
  • $200m earned from podcasting in 2021
  • Nearly $500m - 50% of operating costs for Q3 2022 - spent on sales and marketing
  • $26m paid to Dawn Ostroff over three years 
What's been interesting chatting to various people is the debate around Spotify's need to be aggressive. Ergo, acquisitions like the Clubhouse clone Locker Room for $60m seem ludicrous now, but at the time made relative sense. On that, I would be inclined to agree.

Going beyond that though, one cannot help but read through the article and feel that too many poor decisions have been made, the results from which have been entirely underwhelming.

Yes, Spotify has to be aggressive - but it also needs to be successful too. Right now that is arguably not the case, with profit still eluding the company some 12 years in, and podcasting not shaping up to be any kind of competitor to music for revenue.

It left me - and others I spoke to - wondering whether Daniel Ek is actually fit to lead this company, based on its performance of late. Unlikely to happen, granted, but you see my point.

I also wonder if we're seeing a general return to sanity, not just around Spotify but tech in general. Valuations have become ludicrous, as have those salaries. As belts tighten, I wonder what Wall St's appetite for this will really be in coming months and years.

I also note that various acquisition rumours seem to be fluttering around. The old "Apple and Disney to merge" one hasn't gone away yet. A colleague also shared speculation around Disney and Fortnite owner Epic Games. Could Spotify be the next one on that list? Personally I'm still looking at Microsoft as a possible buyer, if that was to happen.

In the meantime, one only hopes that Spotify can get a grip on its operation. Yes cutting back staff is one measure, but arguably another is finding leadership that will bring winning strategies given Ek's recent failures.

Have a great evening,

D.

🎶 written whilst listening to Flaming Lips eternal classic "The Soft Bulletin". If "Feeling Yourself Disintegrate" doesn't give you the chills, nothing will. One strange thing though: the 'definitive' version to me is the UK CD one, which, I only learned years later, is considerably different to the version on DSPs.


Stories from the Music Industry:
Over-spending and under-pricing: Spotifys commercial missteps have come back to haunt it.
So, financially speaking, whats Spotify got to show for four years and over a billion dollars in podcast investments? According to an Investor Day presentation by senior Spotify leaders in June last year, the firms podcasting efforts generated under 200 million in advertising in 2021. If you were wondering how that compares to the amount of money generated by music (via subscriptions and ads) on Spotify in the same 12 months, I recommend you look at this single image, of Spotify CFO Paul Vogel, from that summer 2022 investor presentation. The green bit is music-related revenue in each year The gaunt wisp of pink at the top of the last bar? Thats revenue from everything else including podcasts.

👆🏻Hot take: hats off to MBW for this superb overview of Spotify's questionable decisions in recent times. Enough to suggest Ek has blown it and needs replacing? Quite possibly.
Testifying before the Senate, independent musician Clyde Lawrence said, In a world where the promoter and the venue are not affiliated with each other, we can trust that the promoter will look to get the best deal from the venue; however, in this case, the promoter and the venue are part of the same corporate entity, so the line items are essentially Live Nation negotiating to pay itself. Lawrence added that artists get no cut of ticketing fees, coat checks, parking passes or bar tabs, while Live Nation takes 20% of their revenue from merch sales. If he plays a show where tickets cost $42, including fees, Lawrence said his band would get $12. After putting half of that toward touring costs, the band receives $6 per ticket in profit, which is split up among all of its members, pretax.

👆🏻Hot take: I could probably have filled today's Digest with Ticketmaster stories, but reading all the press one thing is clear: Live Nation and Ticketmaster are in for a very rough ride and are unlikely to emerge unscathed. 
It will be a little different from the events featuring the likes of Travis Scott and Ariana Grande, however, which took over the Fortnite battle royale island for a massive spectacle. Instead, the Kid Laroi event will take place on a dedicated Creative island purpose-built for the experience. Epic says the event will explore the singers journey from humble beginnings to headlining sold-out performances as a worldwide superstar.

👆🏻Hot take: great to see Fortnite continuing to host these performances - and developing them all the more too. This is the metaverse I can get with. 
The deal, announced on Jan. 24, covers Biebers entire back catalog 290 songs released before Dec. 31, 2021. Hipgnosis Songs Capital scooped up a 100% interest in Biebers publishing copyrights (including his writers share), the musicians share of the royalties from his master recordings (which are still owned by Universal Music Group), and even a more nitty-gritty royalty known as neighboring rights (any time a song is played publicly like at a coffee shop neighboring rights are paid to the owner of the recording).

👆🏻Hot take: per previous comments on this topic, I am curious to see if this stimulates the market for catalogue, which has felt a little more flat in the last 3-6 months. 
However, theres an alternative view on that reports conclusion, which is to question whether a user-centric model might actually give more power to the least engaged music listeners: people who stream less music, and tend to play the biggest hits and artists. How so? It depends on how superfans behave. Do they stream their favourite artists a lot? Unsurprisingly, yes. But do they stream music by many artists a lot? Also yes. As we understand it, the concern certainly within UMGs upper ranks is that this might mean the royalties from those most-engaged listeners are spread more thinly in comparison to those from the lesser-engaged.

👆🏻Hot take: a great point being made here by Music Ally. As various op-ed pieces pop up suggesting potential new models, this feels like a more thoughtful, valuable one considering all the nuances. Worth your time. 
Stories from the Broader World of Tech:
How the Spotify layoffs impact its podcasting business
It goes to the larger issue that Spotify still has to find a way to make its many podcast business acquisitions Anchor, Megaphone, Podsights, Chartable work in harmony. According to the same former employee, that has not happened yet: They dont have an actual strategy for their podcasts yet. There are all these different tech stacks. Another Spotify employee impacted by the cuts felt similarly. There was a lot of confusion about how everything was supposed to work together, they said, also asking to remain anonymous so they could speak about their former employer.

👆🏻Hot take: more opinion on Spotify's strategies of late. One thing is clear: the podcasting play has been messy and is yet to genuinely deliver value back. 
The lawsuit focuses on the way Google coordinates the buying and selling of online ads that get placed on websites through its auction process. It accuses the super-corp of acquiring competitors, forcing publishers and advertisers to use its tools, distorting auction competition, and manipulating auction outcomes. "As detailed in our complaint, we alleged that Google's anti-competitive conduct extends to three significant elements of the digital ad buying process," said Garland.

👆🏻Hot take: speculation seems to suggest Google will genuinely have a tough battle on its hands here. An ad landscape comprising more than just those two giants of Google and Meta? Quite something to consider... 
Our first whiff of the breach was in August, when LastPass notified users that an unauthorized party compromised a developer account. Information taken during that attack was apparently used in November, when hackers were successful in obtaining customer vaults a fact that was only announced publicly late in the day on Thursday, December 22nd, when many people were preparing to take a holiday break.

👆🏻Hot take: IMO GoTo (fka LogMeIn) have handled this so appallingly that any LastPass customer should be taking their business elsewhere. Not because of the breach so much as the pathetic way the company has handled it. Unforgiveable. 
Other Reads I've Enjoyed Lately:
The world's greatest stereo system is inside a Virginia home
From classic rock to classical music, the sound is so pure and so perfect, listeners are moved to tears.

👆🏻Hot take: if you love your audio gear, this is the article for you. Now I just want to hear this setup in action! 
Witness drone metal overlords Stephen O’Malley and Greg Anderson pack and rattle a cave with two guitars, 14 amps, 16 cabinets, and 19 pedals to test the Earth’s crust.

👆🏻Hot take: catnip to a guitar-playing Sunn 0))) fan like me, heheh
What happens when you make meditation a real habit.

👆🏻Hot take: I still feel meditation contributed more to stressing people out than it ever did helping them, due to so many to people trying, then failing, at it. Anyway - this is a good read on ths author's benefits from meditation. 
The latest from Motive Unknown on Twitter:
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