Hi everyone,

Thanks for the feedback after the first newsletter, this week we will focus on Spotify’s new feed and how it plans to reach profitability. I’ve also reviewed for you 6BLACK, Kali Ulchis and Unknown Mortal Orchestra’s new albums.

📰 Music Industry News

What’s Spotify’s plan to reach profitability?

A couple of months after the firm announced they would lay off 6% of the workforce, the Swedish firm seems to struggle to find the path to attain profitability. The streaming platform already has 500 million users - and 200 millions paid subscribers - and is following a new strategy around a new TikTok-like feed after it spent billions onpodcast acquisition.

The limits of music streaming.

Spotify faces several challenges regarding the revenues it makes from music streaming. First, the company must pay licensing fees to record labels and artists for the right to stream their music. These fees can be significant, around 70% of the firm’s revenues according to their own Loud & Clear Report, and as Spotify grows its customer base, these costs can also increase, which may eat into the company's profits. Second, Spotify operates in a competitive market, where it has limited pricing power, which means that they cannot increase their prices without losing customers.

Last, Spotify has limited revenue sources as its primary revenue stream is through subscription fees and advertisements. However, these revenue sources may not be enough to sustain long-term profitability. Without diversifying its revenue streams, Spotify may struggle to grow and expand its business.

Podcast acquisition.

With this in mind, Spotify shifted its focus to non-musical content, leading the company to invest approximately €850 million between 2019 and 2022 in the acquisition of various platforms to expand its podcasting business. This amount does not include the money spent on non-acquisitive podcast content deals. For instance, Spotify spent over €200 million on a multi-year exclusive deal for the Joe Rogan Experience and a considerable sum on podcast content featuring public figures like the Obamas, Kim Kardashian, and Harry & Meghan.

Despite its efforts to expand into the podcasting market, Spotify has yet to see the anticipated benefits of its acquisition strategy, as the market remains highly competitive. As a result of the company's struggle, the podcast team and Dawn Ostroff, the person responsible for the acquisition strategy, were among those affected by the wave of departures

No price increases.

When looking at Spotify’s revenues, there hasn’t been any price increase for 12 yearsin the US, while Netflix has had four price hikes in the last decade, with two more since the pandemic began. While it is worth noting that these are different services, Deezer, one of Spotify's main competitors in France, has managed to raise its prices since its creation in 2007. Currently, Deezer's subscriptions cost between 1€ to 3€ more than Spotify's. Although raising subscription prices may not improve directly its profitability as they would still distribute a similar share of revenues to music rights holders, it could have provided more flexibility to Daniel Ek to maintain the trust of investors and during negotiations with major labels. As a matter of fact, Universal Music Group is entering negotiations with Spotify to direct more money towards artists while Warner Music’s CEO suggested streaming platforms to raise their prices to $13.25, to adjust it to inflation.

Competition.

Other competitors such as Apple Music or Amazon Music Prime face similar challenges. However, Apple and Amazon, have other businesses that can help support their music streaming services. Deezer - which is a much smaller competitor with 7 million paid subscribers - has not yet achieved profitability neither, and the company has reported losses in each year since its founding in 2007.

A new feed, similar to TikTok?

As the music industry continues to evolve, it's becoming increasingly clear that Spotify has the potential to be more than just a music streaming platform. In fact, with the recent addition of video podcasts and the possibility of buying concert tickets and merch directly from artists on the app, Spotify could become a true entertainment hub for its users.

During last week’s Stream On event, Daniel Ek announced the biggest change in 10 years. Spotify will radically change its homepage by introducing a new discovery feed to showcase songs, artists, and podcasts users may like. The new feed is similar to TikTok's For You page, featuring an endless stream of personalized recommendations based on a user's listening habits. Spotify also added a "smart shuffle" feature for playlists that prioritizes tracks the user hasn't heard before. The updated app is part of Spotify's efforts to keep users engaged and compete with rivals like Apple Music and TikTok. The company also announced plans to introduce a social listening feature that will allow users to listen to music and podcasts with friends in real-time.

By making ambitious investments in diversification, engaging its audience, and continuously improving its tech and data capabilities to enhance user experience, the leading streaming platform is paving the way for long-term success. Let's wait and see how this ambition materializes.

💿️ Album Recommendations

6LACK - Since I Have A Lover

The Atlanta-raised R&B singer and songwriter has released his third album, five years after the success of East Atlanta Love Letter. The album showcases great production blending R&B, rap and lo-fi, with 6LACK seamlessly delivering catchy melodies. The songs touch on themes such as love, recovery, mental health and are imbued with a constant sense of nostalgia. With its captivating sound and thought-provoking lyrics, this album has secured a spot on my playlist for a long time. 6LACK has undoubtedly secured his position as a major force in the alternative R&B/Rap scene.

Favorite Track: Since I Have A Lover

Unknown Mortal Orchestra - V

Designed to play as one continuous movement, V is the latest album by Unknown Mortal Orchestra. Ruban Nielson, the mastermind behind the band, created this album in collaboration with his family members. The album features a mix of genres, with Nielson touching on different influences and inspirations from his childhood while rediscovering the joy of making music. Yes, the album is a double, so it might be a bit long, but the general sound of the record makes it perfect to accompany you while doing other activities.

Favorite Track: Nadja

Kali Ulchis - Red Moon in Venus

I'm excited to recommend Kali Uchis' latest album, "Red Moon In Venus". This R&B/pop album, her 3rd album, is written in English and Spanish and as you can guess, is mainly talking about love. Kali's melodic and magnificent voice draws you in, and the guest features (especially Don Toliver) add an extra layer of richness to the overall sound. Kali Ulchis explores a wide range of influences that give the project its unique flavor while leaving is room to the instrumental. If you're an R&B fan looking for a well-produced and emotionally resonant album, this is a must-listen.

Favorite Track: I Wish You Roses

Thank you for reading the second edition of the Newsletter, I’ll leave you with the updated playlist below