59
votes
Spotify is the world's biggest music streamer but rarely turns a profit and just cut 17% of its workforce – its business model looks increasingly precarious
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- Title
- Spotify Is Screwed
- Authors
- Amanda Hoover, Sassafras Lowrey, Paresh Dave, Chris Baraniuk, Matt Burgess, Gregory Barber, Brandi Collins-Dexter, Peter Guest, Aarian Marshall, Steven Levy, Carlton Reid
- Published
- Dec 4 2023
- Word count
- 411 words
When I see numbers like this I always wonder what almost 10.000 employees do at a company like that. I know it is more complex than simply serving a bunch of MP3 files from a webserver, but still. It seems like a thing that just happens at these big tech companies, where they hire a bunch of people that needs to find something to do. I am not saying that Spotify is feature complete and all future developments can be paused, but for the majority of users - isn't it mostly doing what they want? Being able to listen to practically all music in the world. Is 10.000 people needed to keep that running?
Ads.
I was talking to a guy who works at Unity (the game engine company), who said that only like 200 people actually work on the engine. What do the other thousands of people working at Unity work on? Turns out a lot of it is ads.
I think that's what causes a big deal of huge headcount in any of these companies, the apps require some engineers, there's still the need for support and sales and marketing and all that, but once you want to have your own ad network, it apparently starts ramping up the need for developers, SREs, PMs for those developers and SREs, managers for those PMs and developers and SREs, etc.
Headcount bloat from managers wanting to build kingdoms, or proactively hiring developers for future growth, etc., are also reasons, but I think serving your own ads genuinely does require a ton of people. Same deal with Snap, who apparently have 5k people working there, what do they do? Probably a ton of them are on ads. Twitter? Probably the same deal.
edit: speaking of Unity, they acquired a company last year called IronSource. What do they do? Ads. How many employees do they have (now working at Unity) 1000 of them.
I knew ads were a big part of the headcount bloat but hadn’t considered how much it ends up being a bottomless pit.
I guess that also explains why Apple and Netflix seem to punch so far above their weight in terms of headcount relative to the other tech giants despite the fact that the former runs an entire retail business. The ad business is a way smaller part of their business!
You've got:
and probably many more types of people in the core product side of thing. Then you've got accountants, HR, marketers, content management, support, etc. And for sure a number of these people are bloat. But it gets complicated when you want to run a product like Spotify.
Then you have sales people seeking advertisers and intake employees who interface with record labels and distributors to onboard crazy volumes of new music (basically a business in itself).
I won't even touch the engineering stuff, because I easily get irritated about people assuming software engineering is trivial. (If it were possible to do X at 1/100th the employees of Company Y, there would already be a company eating their lunch by doing just that.)
True, but that is still almost 900 people per department you mentioned. It would be interesting to see a piechart of the distribution of all employees. But looking at the historic stats of employee growth they had 4000 less people back in 2020. Has the complexity of Spotify really almost doubled in 3 years? I somehow doubt it. I think this layoff is really just another example of techcompany going on a hiring spree during the epidemic and now have to scale back down because the need wasn't there for that many extra people.
Like I said I'm sure they're bloated. But also consider for a service like Spotify you need some of the teams in multiple time zones to ensure uptime. And I only know all of the role types for product related stuff.
I can't speak to Spotify specifically, but most of those employees probably aren't engineers. A lot of the engineers that do exist probably maintain existing systems or are making changes to be compliant with international business regulations (which have become increasingly complex in software). Just maintaining an application with the level of complexity that Spotify has takes a huge number of hours, and it takes even more hours to make sure people are working on the right projects.
Everything is complicated at scale. One way of thinking about it is that Spotify has over 500 million users, which means that a event happens to 1 in a million users every day, thats 500 occurences. Generally, you end up with lots of weird edge cases, as well as having to handle "business stuff" when scaling.
And also what we don't want. They make so many small UI changes seemingly constantly which I cannot fathom why. For example removing the little heart next to songs, and having to click the dropdown menu to see whether or not you've liked the track. And then changing the heart to a + symbol instead. It's just... why!?
Considering all these firings, such things clearly aren't improving their business either lol but I somehow think we'll keep seeing those kinds of dumb changes because they can't seem to leave it alone
I mean, 35m profit on 3.5bln in revenue is an insanely small profit margin, especially for a company of that size. I really would have thought their margins would have been much larger than that.
This is why I've been pulling away from SaaS whenever there's a product options. So many of these services just aren't sustainable and exist solely so that they can enshittify later, and if they can't, they collapse.
Spotify is particularly egregious. They barely make a profit, and the artists see pennies of that.
The counterpoint of course is that there are thousands of artists I'd never heard of nor listened to before streaming became widespread. I probably wouldn't spend money on a random artist's single, but I'm more than happy to stream niche music. Streaming certainly has a market, the question seems to be whether there's a sustainable business model.
Yup, and that definitely depends on what you want out of your art. I have so many shows I want to watch, so many games I want to play, so many books I want to read, that I really don't need algorithms to try to predict more content for me. I have enough content to last me 10 lifetimes. Occasionally a podcast I listen to has a recommendation, or my life wants me to read a book, or a friend wants me to listen to a track. That's how I discover new media, and as long as I'm buying less than 10 songs a month, it's both cheaper for me than Spotify and the artists that I'm listening to directly get that money.
But yeah, it depends entirely on how you want your media.
my question is, would you pay $25 or $30/mo for Spotify if it meant the artists you listen to actually got compensated fairly? would most people pay that?
I guess it depends on what fairly means. There are plenty of artists that produce their music more or less for free, so I might just go back to not paying for music. Granted, I don't really listen to huge mainstream American artists which demand the highest compensation.
Streaming is here to stay. Personally... music streaming sucks for underground and niche artists (from experience as listener and musician), but it's a double-edged sword. Big data combined with the ever-growing application of data analytics, machine learning, modelling, et cetera has streamlined a part of music discovery and it's easier than ever to find someone you never heard of before. Importantly, the advent of AI/ML is... something I can't put into words. If you are passionate about computer science, you'll likely understand what I mean.
Consider, however;
The question whether a sustainable business model exists is a matter of business and politics entirely. Spotify's priorities are beholden to multiple people: Stockholders, investors, users, the rightsowners who licence their IP to the company, and the music industry. The predominant majority of any major streaming service's repertoire are licenced/owned by three music conglomerates so big they produce, distribute, publish, and market in-house. Business 101 pressures Spotify to keep their most important stakeholders happy (usually those on the board of directors, and/or the ones they circlejerk during self-celebratory business events), lest they fold and the ones directly punished are listeners and musicians.
Matter of fact, did you know Spotify was created as a result of unauthorised and infringing distribution of copyrighted material across peer-to-peer networks in the 2000s, after the creation of the mp3? ...what is unauthorised and infringing distribution of copyrighted material?? Downloading music files from networks like BitTorrent — you'd plug in a dictionary file that finds the scattered bits of a song, download those bits individually from individual sources, profit. Why is it unauthorised and infringing??
Spotify's founders were smart and realised the music industry would never curb piracy. Piracy is a market. That's why Spotify exists and, due to clever strategy, they are the most subscribed-to streaming service. They also influence other services to do the same shit they do.
But wait, if you know anything about computers... you'd know a file can be duplicated into an exact copy, infinitely! An mp3 is a digital file, so you can just... copy it! You have the right with any computer! Imagine you wanna archive music in a NAS drive, but without proprietary code so it can be played anywhere. There are methods to strip DRM-
Congratulations! You have violated copyright law, and cost rightsowners... zero dollars???? ok this is a gross simplification there's a whole convo to be had about this, and this gets into economic theory p fast (which im not versed in). Unfortunately infringement does result in millions of dollars being lost. Businesses just gaslight you into thinking it's solely your fault they lose money, when... no. Trade is complicated, it never truly comes from one place. Get this, stealing money is okay! It's called "innovation" — businesses undercut businesses all the time. Money is technically stolen by proxy of convincing customers to go to your place instead of the competition. Social media goes through enshittification all the time. Companies directly steal too: If you work under a company, there's a good chance a stipulation in your contract exists that state your inventions become their property! At that point, it's out of your control and could even be used against you. Best part: legal~~
But in the same way these aren't "stealing", copying and sharing music files however many times you want isn't rly infringement. It's a function you can rightfully do; digital assets aren't truly unique, therefore there's no lack of supply bc it is infinite. Ofc, pirating music you never bought is another can of worms and this argument applies to music natively mastered into a digital file.
Why is the above unauthorised and infringing then? It's legally stealing. You don't own the recording, you are given permission to have it. After you pay $5, $10 or even more!
The major music industry has always wanted control over music. Control over your legacy is divinely human, copyright law grants executive control industries want. DRM (digital rights management) exists to restrict what you can do with digital files, codifying and restricting consumption through proprietary avenues. This means owners are judge, jury and executioner, leading to the following: Piracy undercuts those in the value chain (those who sequentially worked on music from idea to final form), it nullifies the capital value in master recordings, and it makes you "run out" of digital files. This doesn't take away your privilege/right to copy and share files, mind you. That's native to filesystems. DRM is a restraining order. The major music industry sees music as property: It is intellectual property.
Thanks to the Walt Disney Company, copy rights last longer than human life. In this way, companies manipulate the will of customers who believe the market is "free", they have full autonomy over their decisions, and they can bitch about people making them lose money to cover their ass. No one will tell you music is licenced to you — in fact, Spotify's brand comes down to "you can have 100 million songs, for $10.99/month". This implies ownership, and it doesn't imply ownership: Doublespeak! See... you're actually wrong, the customer is never right because they're greedy, opportunistic, and selfish. An uneducated customer is a good customer.
The biggest threat to the music industry is not copyright infringement. Regardless of legality, actions expressly disavowed by creators (I.E. minting music as NFTs) will be respected by people, provided the relationship goes both ways. Laws standardise behaviour, morality is not inherent to them. Even then, government is fallible.
The biggest threat to the music industry is losing power, directly correlated with the rise of self-publishing and independent musicians on the Internet. You may think uncleared samples are the same as plagiarism, but... not really, imo. Same reason why copying digital music files does not make a record label lose any money — both preserve media instead of restricting it. Granted, there's ethical complexity and I'm more than happy to be shown another perspective but... can of worms.
New musicians expose two things:
Progress never happens without building upon what is there. Recycling makes scarce materials abundant. Within tuning systems and various limitations both man and man-made, you will repeat things. Yet transformation of something makes a new something, making resources "infinite". The irony in all this is American copyright law does not recognise an idea, only the expression of it.
The reality is someday you will die, and with that... this world is none of your concern. At that point, your legacy is public domain. You may even be forgotten entirely, leading to a metaphorical second death. The concept of impermanence is double exposed in Western culture, so why do we still insist on things being permanent?
Control.
Streaming is not enough. Buying is not enough. We don't need to buy anything, however. Sure, we still need to pay for something, that's the whole point of trade. We've lost another choice as a result: You can trade something like money for trust. You can support musicians one way. You do not have to create a new thing in order to trade for money — this only lead to excess and waste, which is bad for the environment. (You also do not have to buy an old thing to support musicians — this is also excessive.)
Patreon exists. Direct donations exist. Crowdfunding exists. In fact, being permissive about piracy is more of a benefit than it is a detractor — it's common for people to listen first and then buy music later, a net positive for anyone who owns the music at hand. Copyleft or even alternative systems should be explored. You can absolutely monetise something copyleft. It's not as alien of a concept as it seems, really — Kevin MacLeod comes to mind.
In fact, re-writable CDs, MiniDiscs, cassettes, VHS, re-writable DVDs, et cetera can be found at a reasonable price for physical merch. Media can be recycled and used again until it reaches end of life. This hypothetical solution highlights why digital distribution is economical; you create once and can play god with availability.
The bitter pill to swallow... music is not art, it is regarded as a product to be sold. It's easy to blame capitalism and corporate greed, but the real enemies are ordinary people. We are the ones who allow this shit to happen, to live in ignorance, and barely make the connection between increasing wildfires and- gasp...... climate change!!!! The musicians who are absolutely ready to die for art (including music)? Chances are, the artists you listen to are not those people.
Oh yeah, if you pay for any major music streaming service like Spotify, Amazon, Apple, et cetera... most of your money is funnelled into one pool of revenue with everyone else's money every month. An artist's total streams that month are divided by the total streams the service gets per month, and the percentage dictates how much of the pool they take. If an artist gets 12% of the service's total streams in one month, they get 12% of the money. Higher is better, lower is worse. It's worth noting that every service's royalty system depends, and is def more complex than this — they won't tell you because trade secrets~ but I'm sure Sony, Universal and Warner know heh. This is to explain the business model all those services use, the model that dictates where more than 67% of the world's money goes.
You have little control over where your money goes! Most of it will go to the top 100 or 200, not the musicians you truly listen to. Even better, if you find out a musician is outed for being a terrible person, take pride in the fact you indirectly support their careers with your money! If the very first instantaneous thought you have "art versus the artist", you are writing this paragraph for me. Sorry not sorry!
Something like 70% of Spotify's operating revenue goes to licensing payments. The two reasons an artist may not make a lot of money are:
They are not that popular.
They signed with a record label, and the record label (as is usual) pays them pennies on the dollar.
Artists didn't typically make much back in the heyday of CD sales, either. Fewer musicians had the opportunity to be distributed and virtually all were signed to labels. The money was always in touring...and that's why labels are locking that down with exclusivity deals with venues and ticket brokers.
The real point of making music is for people to listen to it. More people can do that than ever, thanks to powerful home music production tools and streaming distribution. (And it's a very rewarding hobby.) Simple supply and demand dictates that it should be worth less than even before. I'd rather democratize distribution, so people can put their stuff out there (or my stuff) and I can listen to it...rather than, what, increasing Taylor Swift's already oversized share?
(Also, minimum streaming royalties are statutory, set by a panel of judges.)
Pair the first reason with this...
...and to me, a joke writes itself.
I believe the reason why strong solidarity does not quite exist is that music communties, for all intents and purposes, unknowingly compete against themselves. Hell, every music scene I was and am active in is competitive. No one seems to recognise that personalised timelines, recommendations, and such home pages enforce hierarchy and solidify who is popular, who sets trends, and even influenced thinking. Couple that with ignorance, relative social privilege, and a lack of understanding platform engagement and you get people that collectively bash on something negative but individually market their latest project with constant reminder posts. You might think, where's the problem.... the problem is everyone has the same idea. Now everyone's sustainability is a game of Chutes and Ladders.
I'm not laughing at you or think you're stupid. I think you're right. The Cartel says you're right. But istg if my scenes don't wake up and see we're all stepping on each other, no one is getting a democratised distributor.
At least we have Fabfilter Pro-Q 3.
If the real point is access to music, then piracy seem to be a third option then.
I mean, I don't know. I'm not an economist, but it feels like, if I give Crush 40 $12 dollars for 12 songs on iTunes, surely they're getting more money than if I give Spotify $15 dollars every month over the next 10 years. Is this assessment wrong? Because it sounds to me that people are subscribed to Spotify for the convenience, not out of any real desire to support the artists. Buying merch, a ticket to a concert, or their songs directly, that is supporting the artist.
But my larger point was that Spotify is like Reddit or twitter or YouTube any other unsustainable service that doesn't make any money; it exists to hook you so that it can later exploit you.
I think social media can be sustainable. Media hosting and streaming can become extremely expensive, but hosting a text-based website is really cheap in the grand scheme of things. A long time ago, Reddit had a counter showing how many months of server time had been funded with Reddit Gold. The CEO just got greedy, and the service enshittified...
Why CDs when direct downloads exist? I’m probably the only person I know that buys full albums these days (typically from bandcamp or Apple Music) but I’d rather cut down on physical waste if the file ends up on my phone/computer in the long run. I’m not sure what physical media adds when I could copy said file onto a flash drive (assuming there isn’t DRM on said files).
Buying used CDs and ripping them is usually cheaper than buying the mp3s. At least for anything relatively popular the going rate is $5-$10 per CD with free shipping.
Ahh somehow I hadn’t considered used CDs, that’s a perfect idea thanks!!
But I'm guessing that used media wouldn't lead to any revenue for them.
I think used media works great for older stuff but I definitely look for ways to directly support artists versus giving platforms a huge cut, though that’s easier said than done :(
Buying a used CD gives $0 to the artists, so what's the point? You might as well just pirate it, unless you buy just for the physical object 🤷♂️
Is music piracy popular enough to cover a similar catalogue though? It's certainly less popular than before the rise of music streaming. I'd bet there's more than a few tracks that are easier to track down a physical copy of over pirating.
Music consumption patterns have changed a lot. There's 100,000x more music (an exaggeration? Perhaps, perhaps not) now, democratized by the internet. An individual will have a few favorites whose albums they'll listen through back to back, and then several hundred or even thousands who they will listen only a few tracks from.
The online musicverse has a kind of fluidity and continuity where people can flutter between artists, genres, subgenres, and sub-subgenres and cross-subgenres like hummingbirds dashing between flowers. People share links to gold nugget tracks they find or put together playlists of vibes.
CDs are very discrete units of music and do a poor job—from both a usability and an economics viewpoint—of enabling that kind of fluid musicverse.
I mean, I'd say the availability of 100,000x more music...not necessarily the making of 100,000x more (though that's true too, to a degree, for different reasons). Not being limited by physical space means every album ever made is potentially available. Just look at the various private torrent sites...good segments of their available content predate Napster (by publish date).
I mean, you're right. YouTube is not a streaming service, it's a video hosting service. YouTube Music is the music streaming service.
To avoid Spotify as that's easy, if you look at smth like... Tidal, for instance. They have a free plan that does... wow what you said YouTube provides. Not to be condescending, you're still right. YouTube is not primarily designed for music listening, that's why YT Music was created. Even with Content ID, YouTube is designed for videos.
It's semantics anyway. Download ReVanced and you have an ad-free streaming service, no subscription to YT Music required. Can run in the background, blocks ads, and gives you more control than stock YouTube. And considering compression, it is decent quality-wise. You really don't need the quality you believe you need to perceive and enjoy a song. This comes from experience listening to music and watching movies on Discord calls — through mobile, no less!
Nothing is keeping you from going back to CD's.
Saying it is cheaper though is just completely false. I used to have maybe 200 albums which would have been 150 kr. each, new. While Spotify is 110 kr. per month. I sold all those albums a couple of years ago and it nettet me 2000 kr., used. That is over 1½ years of Spotify subscription. And if I had a duo or family plan, that subscription would be twice as cheap too.
So I would have to listen to those 200 albums, and nothing else, for 20+ years in order for it to be worth it to buy CD's. Add onto that the convenience and all the new artists and albums I discover and listen to all the time on Spotify, that I wouldn't be able to on CD's, because otherwise it would be like 1000 kr. every month to buy those CD's...
Point being: Spotify is 20 billion times cheaper, even in the long run.
I was thinking about this. Not necessarily physical CDs but a model that results in you owing a copy.
You could have some number of albums or songs that you can try out in a month, and at the end you pick an album to keep (read: buy). It could still be a subscription to keep that subscription fire going for the business, but the user would walk away with something from it at the end.
Unsubscribed when they started streaming Joe Rogan.
Mirror, for those hit by the paywall:
https://archive.is/tD20u