Spotify Wades into Video, Can It Compete With the Giants There Already?

May 9, 2016, 4:33 PM UTC
Spotify CEO Daniel Ek Makes Announcement
Daniel Ek, chief executive officer of Spotify Ltd., speaks at a news conference in New York, U.S., on Wednesday, Nov. 30, 2011. Spotify Ltd., the music-streaming service, will open its site to software developers to attract new users with features such as ticket sales and song lyrics. Photographer: Louis Lanzano/ Bloomberg via Getty Images
Photograph by Bloomberg via Getty Images

Most of Spotify’s 75 million subscribers probably think of it as their favorite music streaming service. Will they love it just as much for streaming video? The Swedish company is hoping—and betting—that they will by pouring a significant amount of resources into creating original video programming.

According to a recent report from Bloomberg, Spotify is planning to unveil a slate of original video shows starring actors and artists such as Tim Robbins and Def Jam Records producer Russell Simmons, and it is looking for other Hollywood partners.

The company took some baby steps into the video streaming market last year when it started showing short clips from networks such as Comedy Central, Vice Media, and the BBC. But the plan to add about a dozen new TV-style series marks a substantial expansion of Spotify’s video ambitions.

“Music will always be most important, but our audience likes us and wants more from us,” Tom Calderone, the company’s head of content partnerships, told Bloomberg. “We have to figure out a second act, and I think it will come out of video.”

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It seems clear that Calderone—who joined Spotify earlier this year—was hired to be the architect of this new venture considering the fact that he spent almost two decades at entertainment giant Viacom working on MTV and other channels, and most recently, he was the president of the company’s VH1 video channel.

The only problem with Spotify’s expansion strategy is that there are already some large and well-funded players in the video market, including an 800-pound gorilla named YouTube. Apple—which happens to have more cash on hand than almost any other publicly-traded company in the world—recently joined those ranks.

Apple has broadcast video specials by musicians in the past, including a concern film from Taylor Swift. The iPhone maker has also been working on more elaborate original offerings, such as a six-part series called Vital Signs, loosely based on the life of Dr. Dre.

Spotify doesn’t just have its sights set on music-related video either. It also wants to create original comedy and animated shows that might appeal to a younger audience. Those ambitions will not just put it up against YouTube or Apple, but will take it directly into the path of a couple of other major players in video entertainment, namely Netflix and Amazon, both of whom have been investing billions.

Calderone’s comment that Spotify needs a “second act” is also somewhat telling. The music service wouldn’t need another act if the first one was still growing rapidly and/or profitable, which it pretty clearly isn’t. With 75 million subscribers, Spotify is already one of the largest subscription music services, and yet it continues to hemorrhage money—much like virtually every other digital music service.

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The reality is that streaming music is a terrible business, and it doesn’t show any signs of improving soon. Ask Rdio, which filed for bankruptcy last year, or Pandora, which acquired Rdio and then started shopping itself around to potential acquirers, or Deezer, the European service that called off a planned public offering.

So Spotify is looking for growth, and hopefully some semblance of financial health, in video. But if anything, video is an even more capital-intensive market with equally slim (or non-existent) profit margins. Apple and YouTube have far greater resources than Spotify will ever have, even after raising $1 billion in debt financing.

Searching for a second act is smart, and video may seem like the way forward. But Spotify is moving from a business in which it is the leader to one in which it is a tiny, underfunded competitor among dozens of much larger players. Although success is not out of the question, the odds are stacked against it.

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