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How Spotify Dominates Apple, Google And Amazon In Music - YouTube
Channel: CNBC
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Playing music is part
of civilized humanity.
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Music is so important to us
humans and has been for
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thousands of years, the last 20
of which have seen an
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incredible shift; online
streaming music.
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What started out as music
piracy became an 11 billion
[19]
dollar industry, making up 56
percent of global music
[22]
industry revenues in 2019.
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And one company has become
the clear winner globally in
[28]
terms of paid subscribers.
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Spotify is where
everyone is at.
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Taking on bohemoths like Apple,
Amazon and Google, Spotify
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has dominated the streaming music
industry with about 130
[39]
million premium subscribers worldwide,
despite being number
[43]
two behind Apple in the U.S.,
according to data from 2019.
[47]
Spotify has been on a
winning streak recently with the
[50]
acquisition of Joe Rogan's
incredibly popular podcast,
[54]
along with exclusive deals with
Kim Kardashian and DC
[57]
Comics, all in an attempt to
broaden its scope from music
[60]
streaming to audio giant.
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The companies that we bought and
the talent that we have
[66]
brought onto the platform will
help us become the number
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one audio platform
in the world.
[72]
And the devastating global pandemic
has also contributed to
[75]
Spotify's recent
financial gains.
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Boom. Look at this stock verse
three two hundred for first
[80]
time and it
just keeps surging.
[82]
Linear radio is moving
to on demand.
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We're talking about something
that has billions of
[87]
consumers around the world that
are now moving their
[90]
behaviors online.
[92]
Something like the Covid will
likely accelerate that trend.
[95]
But Spotify had an uphill
battle from music rights to
[98]
artists demanding fair pay.
[100]
This is the story of how
a small Swedish startup came to
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define the way we listen to
music in the digital age and
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what we can expect
in the future.
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The podcast is
moving to Spotify.
[115]
The Internet has changed so
many aspects of media
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consumption, but few have
had a more tumultuous
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relationship with these changes
than the music industry.
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I don't believe we're talking
about streaming music if it's
[128]
not for Napster and Sean
and everything they did.
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CDs became the standard
medium in the 1990s.
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At the same time, home
computers were becoming more
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commonplace. Many with disk drives
built in, allowing users
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to take their favorite CDs and
rip them on to their devices
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as MP3 files.
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This made way for peer to
peer music sharing or music
[149]
piracy through platforms like
Napster and LimeWire.
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If you look at Napster and
of course other competitors that
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followed, it really
disenfranchised the industry.
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Apple, having had great success
with iTunes and the iPod,
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decided to start selling music
digitally on iTunes in 2003
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as a way to charge into
the music industry and combat music
[171]
piracy. It's not
stealing anymore.
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It's good karma. iTunes was
the first legal attempt of
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saying, OK, what Napster is doing
is piracy and it is the
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wild, wild west. How can we
start to look at digital
[186]
downloads? Would people pay 99 cents
for a song to be able
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to have access to it?
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And it succeeded.
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It was all about downloads.
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It's all about iTunes.
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iTunes was the driving force.
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It in turn, destroyed
other music selling businesses,
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knocking out Tower Records and
almost every other music
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store. This was a tough pill
to swallow for the music
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industry as a whole.
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During the 90s, the
money was still flowing.
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The advances I would get,
they would spend a million
[213]
dollars on the promotion
of my singles.
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Me. Like, someone who doesn't
even write mainstream stuff.
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Then the Internet put
a stop to that.
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The industry was so
used to big margins.
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To sell a CD for 20 bucks
and it only cost one dollars to
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manufacture. So the
margins were huge.
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And then go from that to OK,
now albums are 9.99 at iTunes,
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those margins started
to depleat.
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And for music lovers who wanted
their music for free, radio
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was still a
resource they cherished.
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Online radio company Pandora claimed
some of that market
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when it launched in 2000 and
10 years later, it had 48
[250]
million subscribers.
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I remember when everyone I know
was trying to tweet their
[255]
Pandora stations.
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I had it on my phone all
the time, was like, oh, like this
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station becomes this, and
it was cool.
[261]
But pirating was
still an issue.
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A 2007 study concluded that
twelve point five billion
[266]
dollars in total output was
lost in the U.S.
[269]
annually because of
music piracy.
[272]
And radio was great, but
users wanted to choose their
[274]
music. That left the market
open for a small Swedish
[277]
company to make its way in.
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We want music to
be like water, everywhere.
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Spotify was founded in 2006 and
made its way to the U.S.
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in 2011.
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It started with an invite only
beta program for the free
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tier and quickly
garnered favorable reviews.
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But it faced an uphill
battle to the top.
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It was getting the rights.
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It was convincing subscribers to
get onto the platform.
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These were extremely difficult times
for Spotify to make
[307]
sure that they were able to
nab the content, especially at
[310]
that time. One reason for
the company's delayed entry into
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the U.S. market was
because of music rights.
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It's a complicated business that
costs Spotify nine point
[319]
eight billion dollars between
its launch in 2018.
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They made that risky
bet at the time.
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They're like, look. We know we're
going to lose money, but
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that's what we're going to need
to do, if our investors
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support it, for music rights,
given the price, given
[335]
content. Once we acquire that
content, it's the carrot and
[339]
stick approach in terms
of subscribers would come.
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Clearly, the company was onto
something and that piqued the
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curiosity of some
major brands.
[347]
Now it seems every major tech
player has its own music
[350]
streaming platform. Apple dropped
iTunes and created Apple
[354]
Music. Amazon created
Amazon Music.
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Google created Google Play Music
and then YouTube Music.
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Jay-Z even formed his own
service called Tidal, which
[362]
focused on professional
sound quality.
[365]
But Spotify kept its spot at
the top thanks to its freemium
[368]
model, where users can listen for
free with ads or pay for
[372]
a subscription without ads.
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We believe in a
true free service.
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We believe in something where the
user knows that they can
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go back month and month and
month, month again and have
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access to your music.
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By the end of 2019, Apple
Music had 60 million paid
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subscribers worldwide.
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Amazon Music had 55
million subscribers worldwide, nearly
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all of which
were paying subscribers.
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Chinese company Tencent had thirty
nine point nine million
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paying subscribers, while Spotify
had one hundred and
[401]
twenty four million
paying subscribers.
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It was about
free going premium.
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Conversion was key, and I think
Spotify was really the one
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that started that.
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Platforms like Apple Music
are more exclusionary, forcing
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customers to pay after their
free trial is up.
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Apple even tried to kill
Spotify's free version back when
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Apple Music launched.
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Free just makes sense for
customers, which is a major
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reason why Spotify is
so popular today.
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But free isn't so
great for musicians.
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The ad dollars are actually
less than the premium
[435]
subscriptions. But Apple Music,
Tidal, those platforms, you
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get your free trial, but
you have to pay.
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So it's a hard pill to
swallow when you're looking at your
[442]
statement saying, dang,
Apple Music.
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Should I focus my energy on
Apple Music because this is
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where the money is? Or do
I still go with Spotify because
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that's where the users are?
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Spotify gained popularity, artists
started to wonder why
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they weren't seeing the financial
gains they were used to
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with CD sales and downloads.
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Taylor Swift boycotted Spotify in
2014, pulling all of her
[464]
music off the service and
saying she and other artists
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weren't being paid enough
for each stream.
[469]
Adele followed suit in 2015,
announcing her album 25 would
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not be released on
Spotify or Apple Music.
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The term windowing became popular,
where artists would only
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release an album on a certain
platform or would not stream
[482]
an album at all for
a certain amount of time.
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So a lot of artists window
the records where it wasn't on
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Spotify, say, for a certain period
of time but on Apple
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Music. Kanye West was known
for this with Tidal.
[495]
Taylor Swift and Adele both
released their albums on Spotify
[499]
eventually, but it opened
streaming services up to
[501]
questions about how much they
were paying their artists per
[504]
stream. Spotify and Apple both
don't release exactly how
[508]
much they pay distributors per
stream, but it has been
[511]
reported that Spotify pays around
70 percent of the revenue
[515]
made on a stream.
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I mean, people listen to
my music on Spotify.
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That makes me happy.
[520]
Now, I know there people aren't
getting paid for that, and
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that makes me sad.
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But I think that
that's a systemic, technological,
[528]
capitalistic, human issue.
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And you have to go back 300
years and look at how a
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musician was making their
living for their intellectual
[536]
property in 1901.
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In 2019, Spotify announced it was
moving its music focus to
[543]
a more general audio focus
to broaden its offerings and
[546]
widen its global
lead on competitors.
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It acquired the Joe Rogan
Experience early in 2020 and
[552]
penned exclusive podcast deals with
Kim Kardashian and DC
[556]
Comics. The company's stock jumped
eight percent at the
[559]
announcement of the Joe
Rogan acquisition alone.
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A year ago, when I was on
the show last time, I introduced
[565]
the shifts in our strategy
from music to audio.
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At that time, we were a
very small player in audio, but
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growing fast.
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Now, where the number one player
in more than 20 markets
[576]
around the world and quickly
catching up in the markets
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where we're not number one.
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That's where Spotify is taking
the future right now, and
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analysts believe it can ride
that wave for a bit.
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Ninety percent of our monetization
is on the subscription
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side. But 10 percent is on the
ad side, and we do think
[594]
that there is real growth opportunity
for us in the ad
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space, particularly
with podcasts.
[599]
Just after these podcast deals
were penned, the global
[602]
pandemic started taking its
toll on the economy.
[605]
But Spotify was one of the
few companies that weathered the
[608]
storm. In fact, Spotify stock
increased 70 percent from the
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beginning of January 2020 to
the end of June 2020.
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They benefited from Covid
because the lockdown's forced
[618]
people to stop listening to
radio and they discovered
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Spotify while stuck at home.
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Of course, yes. If your
Spotify, you'd much rather make
[625]
money from the podcast acquisitions
and that then having to
[629]
pay 60 to 70 cents for
every dollar to Universal or Sony.
[633]
But in order to stay at the
top, Spotify is going to have to
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stay nimble and quick.
[638]
Competitors like Tencent are
already adding features like
[641]
karaoke to their
streaming music platforms.
[644]
Tencent, at least, is on
that path from a gamification
[647]
perspective. So I do think that
that is an opportunity for
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Spotify to keep in mind, like,
yes, it's great that you got
[655]
Joe Rogan. It's great that
you've got Bill Simmons.
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But look at those
opportunities as well.
[661]
Even though it's a different market,
I think there's a big
[663]
opportunity there. Nevertheless, Spotify
is still very much
[667]
a success story.
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Today, they're sitting there
thinking their cappuccino
[673]
laughing as they
see this success.
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