The Amazon of the Audio Business - The Average Joe

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The Amazon of the Audio Business

August 27, 2020

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Get market share or die tryin’

Spotify ($SPOT) is the category leader in music streaming with 299m users and 36% of the global music streaming market. Founded in 2006 in Sweden, Spotify loudly disrupted the dying music industry which saw CD sales fall 83.9% from $13.36b in 2000 to $2.12b in 2013.

At 36% market share, Spotify is leading the music streaming category by far. Spotify’s biggest competitor, Apple Music, with 19% market share has struggled with getting users beyond the iPhone. Amazon, with 13% market share, is constrained to the 45 countries it operates in vs. Spotify’s 92 countries.

Everyone has an addiction. Mine happens to be data.

What’s the difference between Spotify and Netflix? Spotify’s users spend more time enjoying the content than browsing.

Spotify uses its user data to drive its strong recommendations engine. This data is key to making its product successful and increasing its revenue beyond monthly subscriptions:

  • Promote sponsored songs… Labels and artists pay to get their songs in front of the right listener.
  • Sell listening data to record labels… By controlling the data, Spotify can discover trending artists or genres before anyone else.

0 to 100, real quick

The podcasting industry grew at a rate of 65% annually between 2015 and 2018 and is expected to generate over $1b in advertising revenue in 2021. Spotify is taking a page out of Netflix’s playbook by creating their own podcasts:

  • Spotify spent over $600m in the past 2 years acquiring 4 different podcast production companies: Gimlet, The Ringer, Parcast and Anchor.
  • In May 2020, Spotify signed the largest podcasting deal in history with Joe Rogan. This deal is worth over $100m and it brings his podcast exclusively onto Spotify.

In 2018, Spotify began offering licensing deals to independent artists, a move that will hurt their relationship with the record labels of Universal, Sony and Warner. Similar to Netflix, who began producing its own content, Spotify is looking to get a bigger share of the profits from record labels.

The Real Jeff Bezos

Spotify’s CEO, Daniel Ek’s strategy for Spotify is looking very similar to the CEO of Amazon, Jeff Bezos’ focus on satisfying the customer, building a strong product and deferring profitability to invest in the business. Like Amazon, Netflix and Costco, Spotify puts the customer at the center and strives to build a product consumers love.

  • In July 2019, Daniel invested $16m into Spotify’s stock, a strong bet in himself and the company.

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