Can Spotify become "Spotify for X"?

Happy Friday!

I’m sending this newsletter right before I head off to moderate a panel for Sound Thinking NYC, an amazing new program from the NYC Mayor’s Office of Media and Entertainment that connects high school girls with summer intensive workshops, internship opportunities, mentors and early college courses at the nexus of music, media and tech. The featured speakers come from super diverse backgrounds across audio production and engineering, artist management, music supervision and songwriting. So honored to play even a small part in an initiative that is sure to break new ground for gender equity in this fast-growing space.

Today’s essay involves a fun little diagram of mine, so I’m creating an entirely new section below for the sake of formatting. Hope you enjoy :)

Timing is a funny thing. All of the below events happened within the span of three days:

To me, #1 and #2 refute #3. In other words, both Spotify and Apple would disagree with my argument in my MPP article, because they see a strategic opportunity in replicating the monthly subscription model for music and video across multiple formats, and/or amalgamating all of these formats into a single platform. “If it worked for Spotify, it’ll work for everyone else.”

Ostroff gave her last-ever interview before the Spotify news with Variety’s Co-Editor-in-Chief Andrew Wallenstein, on the Strictly Business podcast. The recording gives some valuable insight into how Ostroff might leverage her media connections to expand Spotify’s content offering, primarily in the video space:

Her example of such a “cable-leapfrogging” brand is Architectural Digest (AD), whose recent video of Zedd’s mansion in the Hollywood Hills generated 14 million views in three days, and gained surprisingly good traction with Zedd’s younger fans. One could see AD and other major magazines touting similar partnerships with artists on Spotify’s platform in the coming years. In fact, Spotify is already getting a headstart on the podcast side, signing deals with comedians like Amy Schumer.

But something’s still fishy to me. Spotify’s messaging about what it really wants to be—a vertically-integrated music company with niche expertise that competes with no one, or a horizontally-integrated media, services and/or hardware company that competes with every other big-tech corporation—seems a bit inconsistent.

Of course, vertical versus horizontal integration is not necessarily a binary choice, and the biggest tech companies engage regularly on both sides. For instance, Uber has recently acquired both vertically, via self-driving tech (Otto), and horizontally, via a bike-sharing startup (JUMP Bikes). Amazon has arguably achieved vertical integration of retail as a whole, while successfully expanding horizontally into cloud computing (AWS), hardware (Echo) and several other verticals (to the point of “taking a cut of all economic activity,” in the words of Ben Thompson).

But given that Spotify has been in the red for over a decade, I think it does have to make a clearer choice to investors between going vertical or horizontal; avoiding that choice could put an even greater strain on its potential to achieve profitability.

Here’s a diagram to illustrate what I mean:

The column labeled (A) refers to Spotify’s path toward vertical integration of the music business—moving beyond simply being a content aggregator into having a stake in every step of music creation, marketing, distribution and promotion. When Spotify’s Chief R&D Officer Gustav Söderström said that the company wanted to become “the R&D department for the entire music industry,” this is partially what he was referring to.

Crucially, this approach is already a concrete reality for Spotify—from partnering with Live Nation on taking RapCaviar, ¡Viva Latino! and other digital playlist brands offline, to signing direct licensing deals with artists and managers—to the point where it’s cemented its brand association with users, artists and investors alike as a music company, full stop. Even Spotify itself has hammered this idea into its investor presentations: the company is better than Apple, Amazon and Google precisely because it’s “choosing” not to treat music merely as a marketing driver for other product sales.

In contrast, the row labeled (B) outlines where Spotify would have to integrate horizontally beyond music—into verticals like video, news, publishing/audiobooks, hardware and even cloud computing/storage services—in order to compete meaningfully with its big-tech rivals. In this horizontal scenario, Spotify would need to stop framing itself as “just” a music company, to use music as a launching pad to drive sales and activity in other verticals and to embrace its potential as “Spotify for X,” X being any media product out there.

Hypothetically, this would bode better for investors as it signals a diversification of revenue and addressable markets, and help Spotify find alternative business models to giving away 70–80% of revenue to rights holders. But so far, most of Spotify’s attempts at horizontal integration beyond music have yielded either airy rumors or failures. The company’s purported hardware line is still ambiguous, its video strategy is still in flux and its multimedia format for podcasts and audiobooks, “Spotlight,” has gained surprisingly little visibility on the platform since launch.

(In fact, I can’t think of any mass-market, licensed digital music service that has successfully expanded into other types of content, let alone turn a profit that could fund such an expansion in the first place. There are some music sites like Discogs that have expanded successfully into films, posters and books—but Discogs not only has a friendlier, licensing-free business model, but also hones in on a specific niche of extreme fandom and collector culture, rather than catering to a mass market like Spotify is trying to do.)

Hopefully, Ostroff can help strengthen Spotify’s relationships with several of these horizontal sectors (particularly news and video), and solidify the company’s subsequent horizontal brand association with users and investors, when she joins the company later this summer.

In the meantime, as I wrote in a recent Billboard article, the streaming service is aggressively toying with different types of content bundles—from its existing partnership with Hulu to potential deals with Scribd and even vinyl subscription services—to facilitate connections with these adjacent audiences and markets that it has yet to master itself.

But if Apple prices its upcoming music/TV/news bundle just right, it could make a significant dent in Spotify’s horizontal prospects.

What do you think is the best path forward for Spotify? Do you think the company can truly grow into “Spotify for X”? If not, do you think it will succeed at vertical integration of the music business—and is that the more sustainable route in the long term? Perhaps vertical integration of music + horizontal bundling is the way to go? I’d love to hear your thoughts!

I’m giving a social media workshop for artists at CD Baby’s DIY Musician Conference at the end of August. The workshop will be highly tactical, diving into the unique communication language of each major social platform and how artists can tailor them to their own creative style and strategy (expanding upon some of my recent blog posts for Stem).

I’ll also be speaking on the panel “The Future of Data” at the A3C Festival in Atlanta in October, along some longtime peers and friends in the music-tech world. This’ll be my first-ever trip to ATL and I’m so excited to get to know the local music scene better. Let me know if you’ll be around!

*deep inhale* Here’s a 1977 video of Italian singer Rita Pavone singing a bilingual duet with a cartoon potato called “My Name is Potato” against the occasional backdrop of the Statue of Liberty and other iconic American landmarks. Good job, culture!