SPOTIFY NEEDS TO MAKE A DECISION ABOUT ITS FUTURE, BASED ON WHETHER IT ACTUALLY BELIEVES ITS OWN MISSION STATEMENT
Out of all the buzz that Spotify continues to amass as a leading music-streaming service, one problem that virtually no one in the music business has discussed yet is the gaping hole between Spotify’s oft-trumpeted mission statement and its actual business model.
Over the past year and a half, Spotify has made its two-pronged mission loud and clear in investor presentations and on its website: “[To] unlock the potential of human creativity — by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it.”
The streaming company has attempted to “[give] a million creative artists the opportunity to live off their art” — or at least jumpstart that part of their objective — by acquiring startups that offer creative tools for musicians and podcasters.
There was Soundtrap, a cloud-based collaborative audio workstation, in November 2017; then Anchor, the podcast creation, hosting, distribution and monetization platform, in February 2019; and recently SoundBetter, the online work-for-hire marketplace connecting producers, vocalists, songwriters, engineers and other creative music professionals, in September 2019.
Over the past year and a half, Spotify has made its two-pronged mission loud and clear in investor presentations and on its website: “[To] unlock the potential of human creativity — by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it.”
The streaming company has attempted to “[give] a million creative artists the opportunity to live off their art” — or at least jumpstart that part of their objective — by acquiring startups that offer creative tools for musicians and podcasters.
There was Soundtrap, a cloud-based collaborative audio workstation, in November 2017; then Anchor, the podcast creation, hosting, distribution and monetization platform, in February 2019; and recently SoundBetter, the online work-for-hire marketplace connecting producers, vocalists, songwriters, engineers and other creative music professionals, in September 2019.
In an investor release, Spotify claimed that the SoundBetter acquisition in particular would help strengthen the company’s “two-sided marketplace” strategy — not only by “meeting the needs of creator teams to create art, engage with, grow, and better monetize their fanbase,” but also by “going from a one-size fits all model to a model that better fits the various types of content and creators on our platform.”
SoundBetter also adds an important B2B (or, in this case, “artist-to-artist”) aspect to the vertical integration of the music business that Spotify has been working towards for the past several years, across creation, distribution, live events, artist marketing and fan segmentation.
Notably, the online marketplace has been rebranded as “SoundBetter by Spotify for Artists.”
But I would argue that acquiring SoundBetter — alongside all other creator tools under the Spotify umbrella — is more of a move on Spotify’s part to make itself look “friendlier” to artists than a meaningful decision for the streaming company’s bottom line.
To its credit, Spotify has invested more in educational tools and experiences for artists than any of its mainstream rivals. Aside from outside acquisitions, the company’s current initiatives under the Spotify for Artists umbrella span a regularly-updated blog, a multi-city, in-person workshop series (Co.Lab), a self-serve digital-ad tool and a network of recording studios.
But if Spotify’s financial statements are any indication, all of these artist-facing elements are merely marketing and PR exercises to help drive the revenue stream that really matters for the company: consumer-facing subscriptions.
According to its latest earnings report, Spotify made 90% of its revenue and 94% of its gross profit in Q3 2019 from paid subscriptions, with the minority remainder going to advertising. In fact, subscriptions are now taking up even larger pieces of Spotify’s revenue and gross-profit pies compared to the same quarter last year, suggesting that the company’s income sources are even less diversified than before.
Spotify declined to comment for this piece regarding whether Spotify for Artists and its adjacent services would eventually turn into a serious revenue stream for the company (even at the ~10% level of advertising), as opposed to remaining just a brand-building tool.
In any case, it’s telling that Spotify for Artists tends not to get mentioned in the company’s earnings reports beyond a few sentences — implying that, at least for Wall Street, it’s not the star of the show.
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