Spotify, the Swedish music streaming service, has rarely done things by the book. Even while announcing its intentions to go public yesterday, the firm eschewed a traditional IPO in favor of a direct listing of its shares – raising nothing while allowing existing insiders to sell their stakes.
It’s a minor miracle Spotify has survived at all: founder Daniel Ek’s business model, convincing record labels to stream their content for fractional royalties, was roundly sniffed at back in 2006. But the labels bit – and despite existing with their guns to his head, Ek and his charges have become so powerful they have even successfully lobbied Sweden’s government to relax immigration laws for their own workforce.
Investors have valued Spotify at around $23 billion. Last year it posted $5bn in revenue but a loss of $1.4bn. That is unsurprising given the firm’s barreling growth and propensity to gobble up competition.
But the core business – its 159m paying customers – must improve if Spotify wants to perform well publicly. Some have suggested the company start making its own hardware. That is expensive, and exposes Spotify to losses it cannot afford to absorb (here’s looking at you, Snap).
Instead the firm should replicate Netflix’s rise to the top of the video game. In addition to streaming music, Spotify must make it.
Spotify already puts on shows and has a wildly popular brand, helped in no small part to its cool Scandinavian base. It also has access to vast banks of data determining what people like to listen to, when and how. It would cost peanuts for Spotify to create an in-house A&R department, combining tech geeks and music nuts to find the Next Big Thing.
Neither would a Spotify label need to be grounded in a particular nation or genre: the global nature of its platform, and access to tech talent worldwide, could root out stars anywhere from Sweden to South Korea.
One problem facing Spotify is that 75% of its revenue comes from the “big three” labels: Warner, Sony and Universal. Any attempt to step on their music-making turf could have fallout that wipes much-needed content from Spotify’s library. Do it quickly, however, and the big three may have no choice but to allow a Spotify record label to flourish.
Netflix’s choice to enter the content-making fray was a huge winner: it seems ridiculous a video streaming service today would not make its own shows. It should be no different for music – and Spotify has the tools to push itself beyond predators like Apple and Amazon. Spotify has shown it has no problem moving fast and breaking things. If it wants to continue winning, it must make things too.