@musictechsolve: Do Spotify Stock Downgrades Go Far Enough?

On June 24th, Spotify shares (ticker: SPOT) was downgraded by Evercore analyst Kevin Rippey, who cut the stock to Underperform from In Line.  Since then, analysts are steadily looking past the loss-making Spotify’s $1 billion stock buy back plan.

Rippey says investors are overestimating Spotify’s ability to make money from podcasts and offering services to musicians and are underestimating the competition from other streaming services—particularly in countries outside the U.S. He reduced his price target to $110.

As ARW readers will recall, I have long challenged Spotify’s kvetching about high royalty rates by pointing to the its high overhead, 7 figure performance bonuses to Daniel Ek when he failed to meet the bonus criteria, and other irresponsible behavior by the board that Ek controls.

Spotify’s interest in podcasts is another comical example of Ek as the Easter Bunny of Screw Ups.  He bought a podcasting company that was unionized.  Sheer genius.  Why did he buy them?  Some people think it’s because podcasts were another form of user-generated content where people work for free in exchange for hot meals…no, in exchange for exposure bucks.

Exposure Bucks

Apple is busy paying for podcasts according to Newsmax:

Apple Inc. plans to fund original podcasts that would be exclusive to its audio service, according to people familiar with the matter, increasing its investment in the industry to keep competitors Spotify and Stitcher at bay.

Executives at the company have reached out to media companies and their representatives to discuss buying exclusive rights to podcasts, according to the people, who asked not to be identified because the conversations are preliminary. Apple has yet to outline a clear strategy, but has said it plans to pursue the kind of deals it didn’t make before.

Apple all but invented the podcasting business with the creation of a network that collects thousands of podcasts from across the internet in a feed on people’s phones, smartwatches and computers. The Apple Podcast app still accounts for anywhere from 50% to 70% of listening for most podcasts, according to industry executives.

So Spotify’s law fare against Apple in Europe should come as no surprise (for more on that subject see the “Spotify Untold” corporate bio book).  What this comes down to is that once again, Apple understands its audience and what would delight them where Spotify wants to build them a faster horse (or at least a cheaper one).

Meanwhile, Spotify is commoditizing music into a “playlist friendly” environment based on your mood rather than being artist driven.  Why?  One possible reason is the psychographic research of Michael Kosinski, whose work formed the basis for techniques honed by Cambridge Analytica and the Internet Research Agency you hear so much about (although it must be said the Kosinski did not work for either of those outfits–no he works as a professor at…you guessed it…Stanford).  See his paper The Song Is You: Preferences for Musical  Attribute Dimensions Reflect Personality, available at the Leland Stanford Google University Business School.

The more insightful analysts are represented by Mr. Rippey, who seems to have a good grasp on Spotify’s business and sees through all the bright and shiny objects they want you to focus on as reported by Barrons (emphasis mine):

Rippey says Wall Street’s expectations assume that either the company will come out way ahead in negotiations with the music labels that control the vast majority of the content that Spotify streams, or that it will make a bundle of money from services that previously accounted for almost none of its income.

Now that the sugar high of the Spotify stock has passed through the system and artists either are happy or not happy with their share of the proceeds–which will be hitting royalty statements right about September 30–labels are now faced with a  second act, and that second act likely will require a bigger royalty check–not a smaller one.

To achieve Wall Street’s targets for gross profit, Spotify would either need to take a larger cut of proceeds from each song stream [also called a lower royalty to artists and songwriters] or generate as much as $650 million from “ancillary” areas like Spotify for Artists and podcasts by 2022—areas the company doesn’t make much money on today, Rippey says. Spotify for Artists offers data for musicians to track which songs are performing well and in which areas, among other benefits. [Which is OK if Spotify for Artists is free, I guess–since we sent them the fans–but my bet is that no one is going to pay for it, certainly no one with a modicum of leverage.]  Spotify makes money from ads on podcasts it owns and has also begun to launch exclusive podcasts that listeners can only get on Spotify.  [Spotify has never had a hit that originated entirely within Spotify.  When it does, check this space.]

Given that music crosses over multiple cultures but that Spotify brings a decidedly European and Anglo/American creative viewpoint to its distribution platform, it is unlikely to be able to fight all fights in all markets and be all things to all music fans in the some 60 countries it operates in.  This is particularly true in countries that actually value their culture and creators.

Spotify is the global leader in streaming music, but Rippey thinks that Wall Street overestimates the company’s power in local markets. “In emerging markets like India, local players dominate the market,” he writes, noting that Jio and Gaana were the market leaders there in the first quarter. “This fragmentation leads to an understatement of how competitive streaming music is globally.” Similar dynamics play out in countries like Indonesia too.

Those are some good concrete reasons why Rippey’s price target is $110, which I think is still about $50 too high because of Spotify’s C team management.  And also because the other analysts are all guiding too high in the Overton Window:

Analyst Rating Price Target
Evercore/Kevin Rippey Underperform (From In Line) $110
Nomura Instanet/M. Kelly Buy $190
Stifel/John Egbert Buy $175
Credit Suisse/B. Russo Underperform $120
BOA/Jessica Reif Ehrlich Buy $230

One major factor that all the analysts overlook, like they missed the subprime crisis, is buried in the commentary that never gets picked up in the Wall Street publications–the fact that artists can’t begin to make a living from streaming the way they could from the CDs that streaming is replacing.  This sudden contraction hurts artists at all stages of development.  To put it in terms that Wall Street might understand more readily, this is a supply chain issue.  The chain will have no supply if unsustainable economics expands which it seems like it will.

There’s about 5% of the tracks that make 90% of the revenue from Spotify-type streamers.  Fans are paying subscriptions every month for music they don’t listen to performed by artists they don’t like.  When that idea starts to permeate the Federal Trade Commission and the Department of Justice, who knows what may happen.  This will be true of podcasters, too–the unionized podcasters affiliated with the Writers Guild of America.  I’m looking forward to that collective bargaining experience.

But for now, it’s only a matter of time before artists who are not in that 5% start to jump ship.  Analysts should be asking, who can encourage them to jump and what will happen to the ship they jump from if there were some disruption below decks in the royalty rates?

Another Bad Artist Relations Week for Spotify–Music Tech Policy

Spotify released one of their groovy ad campaigns last week. This time celebrating their freebie subscription campaign. You really do have to wonder where they find the people who come up with these things. Blake Morgan, David Lowery and David Poe all laid into Spotify with their own tweets.

via Another Bad Artist Relations Week for Spotify — Music Technology Policy

@RBMillado: Too much streaming content is causing viewer ‘paralysis’: Nielsen

Playlistomania?  I wonder what it is on Spotify–that’s what 50 million tracks will do for you.  If this replicates to “listener paralysis” (which seems plausible), it may help explain why the streaming revenue share model leads to declining royalty rates and greater concentration of wealth in a hyper efficient market share distribution.  (Deezer reportedly conducted a similar study in 2018 using a casual poll with findings based more on age than choice.)  Less is more, kids, less is more.

Nielsen’s new Total Audience Report found that the average TV viewer takes seven minutes just to pick what to watch….[A]mong adult subscription-video-on-demand (SVOD) users, only a third of them bother to browse the menu to find content, with 21 percent saying they simply give up watching if they’re unable to make a choice when bombarded with options.

Read the post on the NY Post

@rmilneNordic: Spotify chief wins backing of business families for ‘creative Davos’

Just what we need, Spotify staging another fake songwriter “genius” event now that we made him even richer.  Make you feel better about the reaming we got on MMA?

The chief executive of Spotify is teaming up with some of Europe’s leading business families to finance an annual conference they hope could be a “creative Davos” with a focus on technology and innovation. Brilliant Minds, an event set up by Daniel Ek of music streaming company Spotify and Ash Pournouri, the ex-manager of the recently deceased DJ Avicii, is now owned and financed by a group of Swedish families including the Wallenbergs, Stenbecks and Olssons, whose companies include Ericsson, Electrolux, Kinnevik, Zalando and Stena.

Read the post on the Financial Times

@musically: Spotify CEO says Libra currency could help listeners ‘pay artists directly’

Earlier this week, Facebook announced a new blockchain-powered currency called Libra, and a digital wallet for it called Calibra. Spotify was among the companies backing the plans by becoming a founder member of the independent Libra Association.

Now Spotify CEO Daniel Ek has been talking about his hopes for Libra, including the suggestion that it could one day facilitate direct payments to musicians from fans.

“I think like cryptocurrencies and blockchain are obviously two of the biggest buzzwords you can have today. And for me, I don’t think technology in itself is that interesting· What I do think is interesting is what we can do with that technology,” said Ek, in an interview for Spotify’s own Culture: Now Streaming podcast.

“What everyone who’s a part of Libra is trying to accomplish is: it’s interesting that we have all these different currencies, all of these different ways of doing things. But the reality is, there’s several billion people around the world that don’t even have access to a bank account,” he continued….(Whatever you think of Libra, the fact that Spotify is, right up to CEO level, even thinking about direct payments from fans to artists is a significant talking point for anyone mulling how the streaming service will evolve in the coming years.)

Read the post on MusicAlly

Must Read by @lizpelly and @zachariahkaylar: Oh Spotify Up Yours! A conversation with @lianaisferal

[Editor Charlie sez: The popular rage against Spotify is setting in.]

ON WEDNESDAY, MAY 29, The Baffler’s ongoing event series for the generally disaffected and pissed off, The Bad Society, continues with a concert at Murmrr Ballroom in Brooklyn featuring music from Xenia Rubinos, Public Practice, and Blood Club—along with a panel on the shitscape of the music streaming economy led by Liz Pelly and featuring David Turner and Xenia Rubinos. (You can still snag a ticket here.)

In advance of the concert, Liz Pelly and Liana Hell Lean of Blood Club and the hardcore outfit Decisions dropped by our gleefully dyspeptic radio program The Bad Society to talk with host Zach Webb about the unrepentant joy of scorning Spotify, punk rock’s obsession with Instagram, and working toward a better DIY scene on the archipelago of overpriced trash islands known as New York. While this interview has been drastically edited for length and clarity, you can listen to the whole broadcast—featuring an eclectic caboodle of tunes selected by Hell Lean from the likes of the queen of Cambodian rock, Ross Sereysothea, to the thundering punk rock of Eteraz—here.

Read the post on the Baffler

@digitalmusicnws: Sony/ATV Ex-Chairman Marty Bandier: ‘I’ve Never Gotten a Call from [Spotify CEO] Daniel Ek’

[More insightful commentary by a senior publisher.  I can tell you that Marty did not move from a little office on Sunset Boulevard to where he is now by spending money on overhead.  It’s simple: if you earn, you spend, but if you can’t manage to earn, then don’t spend.  And if you don’t earn, don’t blame the songwriters–they just provide you with your main product, they don’t run your operation.  But the real reason Ek should have taken the avuncular Bandier to lunch is that he might have actually learned something about life from the seasoned publisher.  Just sayin’.]

Why didn’t Spotify CEO Daniel Ek reach out to music publishing’s biggest exec — even once?

Earlier this week, Sony/ATV Music Publishing’s former Chairman & CEO, Marty Bandier, revealed the strange fact, part of a broader slam against the streaming giant.  “Some people within Spotify have called me and sort of off-the-record apologized,” Bandier recently told students at his namesake Bandier Program at Syracuse University, referring the Spotify’s controversial challenge of publisher royalty rate increases by the U.S. Copyright Royalty Board….

…Spotify is now a public company. They have to figure out how to make money, but maybe they should start in their own house and figure out how to save money in general overhead instead of the royalties they pay out.

“If I ran a business and had that type of overhead I would have been fired a long time ago. You just can’t do that and expect to be successful.”

Read the post on Digital Music News