Per Business Insider, the streaming music service Spotify has apparently decided that the road to profitability, or greater profitability, lies in jumping on developing original video content and hoping it will attract subscribers in the same way that Netflix and Amazon Prime are attempting to do:
Spotify has become a very popular service with consumers, but its business remains challenged. The reason: extremely thin margins. Spotify does not own the music its customers listen to. Music labels do, and Spotify has to pay the labels every time a customer listens to one of their songs. As Spotify gets more popular, the labels charge more and more.
The original plan for Spotify was that it would grow so popular with music listeners that Spotify would be able to dictate negotiations with the labels. This hasn’t happened. This is in part because there are several Spotify competitors all bidding for the same rights to the same music. Even though it has become a significant source of revenue for the labels, Spotify still depends on the labels more than they depend on it.
My initial reaction is that this is an odd move. The more logical move for Spotify would be to start signing bands, producing their records, and holding on to both profits from those album sales and the profits from streaming, which Spotify could demand exclusively from the artists whose albums they put out. That would involve much lower start-up costs than television, which is enormously expensive if you want it to attract buzzy talent and look good — I’m sure Battleground, Hulu’s nifty little political show, has done an okay business for the service, but it hasn’t made nearly the cultural splash as House of Cards did for Netflix. Second, sticking to music would keep Spotify in the same core business — they’ve got data that will let them push music they own into listeners ears via recommendation algorithms, and listeners who already come to them for a high-quality music product. Spending money to let new audiences know they’re in the television business, and to convince them that Spotify TV shows are worth watching, would mean a significant advertising outlay. And Spotify would presumably have to make technological improvements to make sure it can handle the much higher bandwidth of video.
I’m not saying Spotify is wrong to try to go into the television business. But original television is hard to do well, and it’s not going to be a solution for every media company. Netflix and Amazon are still a long way from proving they can consistently make genuine hits, much less that original content is going to be their core business.