(2018-03-05) Thompson Lessons From Spotify

Ben Thompson: Lessons from Spotify. It is not exactly groundbreaking analysis to note that Spotify has significant marginal costs — specifically, the royalties it pays the music industry (not just record labels but also songwriters and publishers).

Spotify’s margins are completely at the mercy of the record labels, and even after the rate change, the company is not just unprofitable, its losses are growing, at least in absolute euro terms:

There is one more possibility: Spotify could one day cut out the labels altogether — the idea certainly makes sense on a conceptual level.

The problem is that the music labels, as I wrote in The Great Unbundling, have been strengthened by Spotify as well:

Notice how little power Spotify and Apple Music have; neither has a sufficient user base to attract suppliers (artists) based on pure economics, in part because they don’t have access to back catalogs.