The Spotify versus Apple Music debate has become one of the fiercest music discourses of the 2010s. The battle between the two streaming giants is a battle of tradeoffs. Apple Music currently has music videos and album write-ups. Spotify answers back with better UI performance, a full toolkit for finding new music, nearly 400 million more users and full support for music sharing through features such as blends and shared playlists, making both finding and sharing new music with friends easier than ever.
Despite being the more popular choice, the ethics of Spotify’s practices are becoming increasingly important in user choice, especially after Spotify raised its prices, ridding the company of its affordability advantage. Whether because of Spotify’s controversial stances on misinformation or its new royalty policy that requires a minimum stream count for a payout, many users are beginning to question their brand loyalty, especially considering their product is sonically inferior.
While the decision to raise prices will ultimately yield the company hundreds of millions of dollars more per month, why change the price now? The answer is obvious: Spotify is struggling.
Many factors are stacked against Spotify. For one, the service doesn’t directly create its own revenue. Artists and labels take up to 70% of the profit from streams, meaning that Spotify only sees between $0.001 and $0.002 per stream — not nearly enough to make up for the close to $10 billion in royalties the service has paid since its inception. Most of Spotify’s revenue must come from advertisem*nts and premium memberships as a result, so raising the subscription price would be the easiest course of action toward increased profits.
Spotify has hemorrhaged 464 million euros (about $500 million) over the last two years before this price hike. This significant loss means that, during this period, Spotify was being held up solely by investors. As a last-ditch effort to maintain their low price, the company acquired Gimlet Media, a podcast production house, and spent millions on exclusive rights to podcasts like Call Her Daddy and The Joe Rogan Experience. This investment doubled the ad revenue generated by podcasts but at a great cost to the company. This year, Spotify has also entered the audiobook game to tap into a new potential market, but it’s too soon to measure whether this move will drive up company profits.
The issues plaguing Spotify point to an unfortunate truth for listeners: Current streaming service models simply aren’t profitable. How do others stay afloat? Services such as Apple Music and Google Play are anchored by large, profitable tech companies. Apple and Google can afford to take losses on music streaming because they have so many other markets and products to keep their services alive. Spotify doesn’t have this same backbone and struggles to stay in the green as a result.
A premium price raise was a necessity if Spotify wanted to stay alive — but did it work? For now, yes. The company reported quarterly profit for the first time in over a year, which is good news for Spotify investors and executives. However, this profit is probably not sustainable. The company still has to keep artists and labels happy by churning out royalties, something that will prove difficult for the independent streaming service that lacks the same bottomless pockets as its competitors. The price hike was a mere band-aid for a larger issue.
So what can Spotify do besides periodically raise prices? Not a lot. It is clear the current music streaming model isn’t sustainable long term, and Spotify can only ride on the coattails of investors for so long. Beyond expanding product reach to podcasts and audiobooks, the company has to make music streaming profitable.
One way to do this is to decrease the cost of acquiring music. This would be done by removing the middleman — record labels — and creating a Spotify label. This cuts the cost of royalties, as Spotify would own the rights to the music offered on their platform. However, this move would undoubtedly prove difficult. If Spotify started its own label, other labels would likely give severe pushback and sign artists to longer-term deals to protect their yields. Even if Spotify somehow managed to create a successful label, other music streaming services would be sure to follow, starting a battle Spotify would inevitably lose. On top of that, this push would only work if Spotify started signing a few big names to entice other artists to follow. Unfortunately for Spotify, to acquire any mainstream talent would require up-front cash, something the struggling company might not be able to afford.
While all hope is not yet lost for Spotify, the platform’s current model is unsustainable. Investors can only hold America’s most popular streaming service up for so long. Spotify needs to change, and it needs to change soon.
Daily Arts Writer Nickolas Holcomb can be reached at nickholc@umich.edu.
