Spotify and Microsoft

A welcome development:

Billboard will launch a newsletter in October highlighting the unfiltered thoughts of the CEOs, decision-makers and power players at the intersection of technology and music, written by Billboard’s director of technology coverage, Micah Singleton.

Great topic for the inaugural column:

Will Spotify Stay Independent — and Should It?

Spotify is growing slower than it has in previous years, its profitability is negligible, and the company’s main competitors are loss-leaders for their respective corporations (Apple and Amazon), which can pump millions into them at any time. 

“A year ago? I could see Microsoft buying Spotify,” one CEO says. “Now? That’s very hard with M&A. It’s becoming harder and harder to buy it.” The newly-emboldened Federal Trade Commission — led by chair Lina Khan, a longtime proponent of breaking up the big tech conglomerates — would likely raise hell if a tech giant tried to buy Spotify, but multiple executives brought up Netflix (whose co-CEO Ted Sarandos sits on Spotify’s board of directors) as a potential partner for an “untraditional merger based on streaming economics,” as one investor put it.

“The industry needs them not to be bought by a tech company,” another CEO says of Spotify. “We need competition, and we need a big player that is not Apple or Amazon.”

Two interesting things about seeing Microsoft being mentioned in this context:

1) It is a very neat overlap: Apple, Amazon and Alphabet are the three tech giants along Microsoft presenting a market cap of more than US$ 1 trillion. Apple Music, Amazon Music and Alphabet’s Youtube Music are the three major Spotify competitors. 

2) Microsoft has a very long story of trying (and failing) to lead digital music. By now, Windows Media Player is 30 years old!  This article by Cherie Hu is a great overview of the story. She counted “at least six different music services that Microsoft acquired, launched or powered, and subsequently spun off or shut down, between 2000 and 2018”. An acquisition of Spotify would be an amazing coda to this saga.

P.S.: Just for curiosity’s sake and to point to a great essay, here is Matthew Ball analysis of what Netflix could do on audio…

Compare all of the above to what it would take for Netflix to launch an on demand audio service. The world doesn’t need “another Spotify”, but the core stack is relatively easy to establish as Netflix already has on-demand audio functionality (i.e. tied to its video) and a robust recommendations engine (obviously more work would be needed). Furthermore, audio doesn’t require complex social features or multiplayer live ops. And with a few billion in minimum guarantees, Netflix could acquire non-exclusive rights to nearly all music ever created. $300MM a year could then provide the company with an expansive slate of originals, too. The business model is also straightforward: sell for $10 per month and pay out $7.5 in content costs. Audio is an important competitor in the “leisure wars”, and I don’t mean to suggest Netflix could easily conquer it. However, gaming is far more threatening in reach, implications, and entry.

Leave a Comment

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s