Farming isn't a growth bet. Spotify could break even by increasing their prices/fees by 25% or by reducing their overhead by the same amount. My guess is that either would be an easy option if their goal was short term profits. This represents a high burn rate for sure, but it's not inherently problematic.
That doesn't mean that the content licenses aren't predatory, just that I don't see the relevance of that argument.
> Spotify could break even by increasing their prices/fees by 25% or by reducing their overhead by the same amount.
It's not obvious this is the case. If the record companies see Spotify increasing their revenue, they may just demand higher fees.
That's the crux of the problem here. Spotify need the record companies, but the record companies don't need Spotify. For now the record companies are squeezing Spotify for all their revenue, but it's no trouble to them if Spotify goes out of business. It's a tiny revenue stream for most of these companies.
> Spotify need the record companies, but the record companies don't need Spotify. For now the record companies are squeezing Spotify for all their revenue, but it's no trouble to them if Spotify goes out of business.
I suspect Spotify knows this, and is betting on getting too big to fail before the record companies push them under.
I guess that is the strategy they are playing, but I can't help thinking Spotify are going to be in a weak position no matter how large they are.
Fundamentally, the service they offer is not particularly difficult to replicate. They take music and stream it to users, supported by either advertising or a monthly subscription.
They act as a middle man that the big three record labels could easily cut out, and at the same time these labels can effectively pull the plug on Spotify at their convenience.
I'd say farming is the quintessential growth bet. : P
Most of the overhead would seem to be royalties, so reducing them by 25% may not be an option. The revenue is also determined by ad market rates, which can be cyclical, and is out of their control.
Do you really think the labels wouldn't increase their price by 25% then? They already think they get way too little money from these services. That's why they're taking all the money they can get. If Spotify increases the monthly price to $20, the labels would probably ask for $19.5 of it.
Is high burn rate really a good idea for a company like Spotify? They have been around since 2006. Not exactly in the heart of pizza-consuming startupland any longer. If they aren't able to be profitable now, they have a big problem.
That doesn't mean that the content licenses aren't predatory, just that I don't see the relevance of that argument.