Spotify: Villain or Streaming Trailblazer?

Posted: February 8, 2022 by admin

We’ve all seen the various takes about the Spotify controversy involving Joe Rogan and Neil Young spill into our social media platforms. I think it’s safe to say that Joe Rogan is wildly irresponsible given his large audience to spread Covid misinformation – his use of racial slurs is an entirely separate and disgusting matter. The news is now focusing on Rogan’s recent apology, and all the noise is drowning out some crucial music business issues that are still very much worth exploring. 

A recent New Yorker article about the controversy, “Reasons to Abandon Spotify That Have Nothing to Do with Joe Rogan,” brought up some interesting points about the subscription business model’s structure and its role in what the writer calls “the radical devaluation of musical labor.” But I disagree that Spotify is “singularly hostile to working musicians.” 

The article begins with “It’s good to see Spotify suffer, at least in the short term.”  Why should Spotify suffer?  Does it pirate content?  Does Spotify not need to negotiate licenses that give it a chance to operate as a business?  

Spotify pays large fees to music rights holders via incredibly complex licensing deals. The company initially proved it could execute and succeed in Sweden – albeit a small market for a launch, but one where music piracy was rampant.  Spotify convinced users in this market that a great product at a fair price was better than stealing music.  The company then expanded to the rest of the world and negotiated some of the most complex licensing deals to the best of their ability in order to build a viable going concern.

The tough reality of the recent controversy is that the Joe Rogan issue has forced Ek to walk a fine line between content censorship and downright misinformation. Ek knows that Rogan delivers a massive audience and that means revenues to his platform. Ek’s creation of a “content advisory board” may come off as lip service to addressing the issue of such polarizing content, but in fairness, he has some tough decisions on his hands. As a public company CEO who has seen a massive decline in market cap recently, he is keenly focused on boosting his numbers and improving margins. Rogan and the growing market of podcasts does both. 

The article also paints Ek as an arrogant and aloof billionaire who sits in an ivory tower. In reality he is a resourceful entrepreneur and just one of the streaming founders that broke out despite insurmountable odds in the early music technology space. 

While I applaud Neil Young and others for their choice to remove their content due to the COVID misinformation spread by Rogan, I’m not sure if it really matters.  There are multiple ways to access content and many listeners use multiple streaming services.  In the end, his catalog likely got a boost from the controversy but that overshadows the real workings of streaming music. 

There is still the question of the sustainability of Spotify’s original business model of a streaming music platform. It created a massive free and premium subscriber base out of its music offerings but margins have been tight. However, in a smart move to boost gross margins, Spotify has launched podcasts a few years ago as a new form of audio content to delight users. It seems to be working.

So the bottom line is that streaming goes beyond just music. It is the combination of digital podcasting, music streaming and the association of advertising and subscriptions that can build sustainable business. Spotify’s move to podcasting in the past three years and its potential ad revenues are similar to talk radio in the analog era, but in repeatable digital format. It has proven successful. In doing so, they created a “revised business model” based originally on its music subscribers, but evolving to become an audio media platform for innovative, even controversial, podcasters and program directors.

Spotify is navigating a difficult but evolving space. Reducing it to the Rogan vs. Neil Young event or the Spotify vs. musicians war misses a more lasting reality: that streaming is here to stay, whether it’s words or music. The content decisions being made now are being informed by the age-old question, “what are people willing to pay for and what do they expect for free?” The answer changes generationally. With all the colorful controversy, I think it’s important to note that those like Ek who are trying to navigate these turbulent waters are not the bad guys here, they’re innovating on their feet in a time of massive change. The technology indications at play here are the bigger story.

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