How Spotify Remained #1 in Music Streaming Vs. Apple, YouTube, Amazon

How Spotify Remained #1 in Music Streaming Vs.  Apple, YouTube, Amazon

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In this weekly series, CNBC takes a look at companies that made the first Disruptor 50 list, 10 years later.

Spotify, once a Swedish startup tasked with tackling music piracy issues, is now the most popular audio streaming subscription service in the world.

First launched in 2008, the platform began as a way to allow listeners to stream their favorite songs while still compensating artists for their work—a major problem caused by file-sharing services at the time, such as Napster and LimeWire, which greatly affected music sales. as the services had no legal rights to the music.

Today, Spotify has more than 80 million tracks available for users to stream. In its latest earnings report, the company touted its 456 million active users with 195 million paid subscribers across 183 markets. The platform disrupted the audio streaming field—being named to the CNBC Disruptor 50 list in 2013, and also appearing on the list in 2014, 2015, 2016, and 2017—and set the blueprint for audio streaming services to come.

Spotify’s success quickly caught the eye of major tech competitors, who have since released their own streaming music platforms such as Apple Music, YouTube Music and Amazon Music. But even with competition and uneven stock market performance, Spotify has remained at the top of the charts, as the No. 1 audio streaming service, and has kept pace with subscription prices.

The $9.99 monthly premium plan has remained unchanged since it launched in the US in 2011, and remains as low as any competitor. Apple recently raised its monthly price by $1 to $10.99. (Amazon Prime members receive unlimited music for $1 less than the non-Prime price, at $8.99). Price adjustments continue between players in the streaming music space. YouTube Music’s family plan is $14.99 a month; Amazon this week raised its family plan from $14.99 to $15.99, the same as Spotify.

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Daniel Ek, Spotify’s co-founder and CEO hinted at higher prices in the US next year in a conference call after Spotify’s latest quarterly report, saying that raising subscription prices “is one of the things we want to do and it’s something we want [consider] with our label partners.”

“We’ve actually done more than 46 price increases in markets around the world,” Ek told CNBC in October. “And a lot of those markets have had a lot more inflation and a lot more economic problems than what the U.S. is experiencing right now, and despite all that, our subs numbers held up a lot better than expected. We think we have pricing power.”

The competition is making headway in terms of subscribers, and Variety reported this week that YouTube Music has grown from 50 million subscribers to 80 million in a year. Apple reported an early increase in Music-specific paid subscribers back in 2019, at 60 million, but has since focused on the numbers for its overall services business — which includes Apple TV+, Apple Music, cloud services and others — growing to reach 860 million paid subscriptions .

In 2015, Spotify began to evolve beyond music to become the next big name in audio, launching its podcast platform in the US. Now the platform has over 4.7 million podcast offerings and has implemented more video elements to keep users more engaged.

“We’re constantly trying to move forward with better product offerings, with better programming, with better curation,” Ek told CNBC in 2015. “It’s really about moving faster than the rest, and I really feel like we’re doing a pretty good work on it.”

The company announced last September the acquisition of more than 300,000 audiobooks on the platform available for purchase, looking to compete directly with audiobook services such as Amazon’s Audible.

“We see the opportunity to continue to imagine and explore new verticals across our platform – in audio, but also beyond,” Ek said at the company’s investor day in June. “And for each vertical, we will develop a unique set of software, services and products and business models that will be tailored to that specific ecosystem.”

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Spotify went public in April 2018 in an unusual direct listing, one of the largest technology companies to do so at the time. The listing was unique as the company already had significant name recognition and had no need to raise capital. The IPO launch was considered a success, trading above the benchmark price on the opening day and in a fairly narrow range.

“We set out to reimagine the music industry and provide a better way for both artists and consumers to benefit from the digital transformation of the music industry,” the company said in its initial filing in February 2018. “Spotify was founded on the belief that music is universal and that streaming is a more robust and seamless access model that benefits both artists and music fans.”

This view has not always been shared by musicians, with many protesting the royalties paid in the early years of Spotify’s rise. Taylor Swift removed her catalog from Spotify in 2014 and went so far as to write an op-ed for the Wall Street Journal about the devaluation of music caused by technology. Radiohead’s Thom Yorke was a constant critic of streaming, once referring to Spotify as the “last desperate fart of a dying corpse.”

As the music industry has shifted to predominantly streaming, these complaints have diminished, but not the criticism of Spotify. Shares fell by $2 billion in January when the platform came under scrutiny over one of its most popular podcasts, “The Joe Rogan Experience,” which spread misinformation about Covid-19. Artists such as Joni Mitchell and Neil Young, already a longtime critic of streaming platforms, pulled their music from Spotify in protest. The company pulled several episodes of Rogan’s podcast with offensive material, but Ek refused to drop the personality.

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Profitability continues to be the big business question. Spotify reported a bigger-than-expected loss in Q3, and shares hit new lows.

Through it all, Spotify has remained No. 1 with a healthy lead over the competition. What keeps Spotify users hooked on the platform? The company credits its personalization algorithms that make the service unique to each consumer.

Its daily mix and Discover Weekly playlists are curated for each specific user with music they love as well as new tracks the platform thinks they might enjoy based on listening history. At the end of each year, the company also releases Spotify Wrapped for each user, creating playlists to highlight the year’s best artists, songs, albums and genres and encouraging them to share their results on social media.

Over the next decade, Ek said the company will generate $100 billion in annual revenue — current annual revenue is about $12 billion. It wants to achieve a gross margin of 40% – the last quarterly gross margin was 24.7%.

Ultimately, Ek aims for one billion users on a “far more dynamic and open platform”.

“A platform that will entertain, inspire and educate more than one billion users worldwide,” Ek said at the company’s investor day. “And as the world’s creator platform, we will provide the infrastructure and resources that will enable 50 million artists and creators to grow and manage their own businesses, monetize their work and effectively promote it.”

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