The Future of Spotify: Audio might be first, but Video is Second

Full disclosure, I actually wrote the following piece a few months back but didn't end up posting it anywhere publicly. I went back and forth on what to actually do with it, and I figured what better place to re-home it than in my ongoing blogging project. I wanted to practice some business/financial writing and this is my first crack at it. Without further ado, here’s my take on the future of Spotify:

Spotify has our ears cornered when it comes to audio entertainment. With a strong and sustained lead in the music streaming race, they’re not going to wait around for (F)AA(N)G to bare the teeth of their R&D teams. Instead, Spotify is going to turn their algorithms towards filling another one of our five senses, and it won’t be taste (Spotify Matcha anyone?).

All eyes on the Fear Factor Guy

There’s already been a lot of coverage to Spotify’s 100 Million Dollar deal with Joe Rogan, but he’s really the tip of the UFO-preserving iceberg. As his viewers have made it well known, we can see the inside of his new toaster oven-esque studio in Spotify’s app. This is really the start of what will be a larger push into video content offerings through Spotify, for a number of reasons.

Feeling Twitchy

For reasons that we’re all familiar with, artists have had to adjust their strategy when it comes to reaching fans. While the rest of us were forgetting to unmute ourselves on Zoom, artists worked out a new way to reach their audiences through live streaming. While you don’t get to experience someone pouring a beer down the back of your shirt, live streams have given artists the ability to interact with their fans in real time, and fans are eating it up. BTS scooped up a cool $20 million in the middle of June as nearly 800,000 fans tuned in to see their favorite tracks performed over a screen. Live streams represent another value add to artists that Spotify could champion; Giving them the ability to reach fans in real time provides another potential revenue stream (it's no secret that streaming doesn’t pay the bills) in the form of Twitch style rewards. It also provides a way to create continuous engagement which can cut down on some of the costs of acquiring new ears (and now eyes).

In 2019, the main cut into Spotify’s revenue was Cost of Revenue, or COR. COR boils down to licensing fees paid to artists and labels. On the other end of that cost is primarily marketing, which is a label’s number one expense. The free marketing provided through live streaming could cut the high cost of feeding the labels. On the other end, Spotify’s margins for ad-supported users leave something to be desired, so video ads could provide some additional cushion for everyone involved. This function alongside their new marketplace feature, would give artists a variety of ways to reach listeners and now viewers.

Spot Tok. It's a working title

Another staple of quarantine has been the endless stream of 15 second videos from everyone’s favorite successor to Vine. Although his Old Town Road money is beginning to dry up, Lil Nas X used Tik Tok to fuel a new take on a viral marketing campaign. Lil Nas X used Tik Tok’s dancing teens to ride his horse to the top of the charts. It's likely Spotify could build on this model of short-form videos to give artists another key way to interact with their audience, and again reduce the high cost of getting the word out about songs.

Final Thoughts

Spotify is no doubt looking for new ways to grab our attention, and reduce costs to their business and to that of their partners. Moving into video provides them all that and more, meaning it might not be long before Spotify is the reason our screen time is going up.