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
—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!