Spotify’s Quest to Own Your Ear

Hi all, I have a special treat this week. I’ve teamed up with Dan Runcie, who writes the wonderful newsletter Trapital about the business of Hip-Hop. His analysis of the music industry is elite and the essays he has published are some of my favorite reads. Today we are teaming up to write about a company that overlaps our interests—Spotify. If you want to subscribe his newsletter you can click here

---

Within 24 hours of employment at Pandora Radio, Evan knew the company was destined for doom. It was his first internship in 2016 in the Bay Area, with a role on the corporate strategy team. At the time, executives would stride around the office, lauding Pandora’s superior music recommendation capabilities and long-time leadership in the space. There was some panic over Spotify, but Pandora felt it could respond well. However, as Evan walked over to his desk he saw a C-suite executive happily bopping his head, Spotify’s desktop app open on his computer. When Evan later asked that executive why he was on Spotify, he responded simply, “It is more convenient.” Note: Yikes.Spotify has been the dominant global music streaming platform. Through a combination of convenience, partnerships with rights holders, and on-demand listening, it outlasted music piracy and beat legacy platforms like iTunes. It has built the business that saved the music industry. In October 2021, the company had 381 million monthly active users and was growing 19% year over year. Its users reside from Birmingham to Bangladesh, with the service available in around 180 countries. The business is cash flow positive and is inching ever closer to profitability. 

We could write a piece about how the company has fueled user growth through telecom and consumer packaged goods partnerships. We could also examine the longer term effects of artists like Neil Young and Joni Mitchell pulling their music from the platform due to Spotify’s deal with The Joe Rogan Experience. Or why its push into concert ticketing couldn’t challenge Live Nation or AEG Presents. But what is fascinating to us is a different question: in a market with multiple credible alternatives, what force is keeping Spotify on top?

Our thesis is simple: Spotify wins because it has what matters most—attention. Spotify is the primary distribution tool for the biggest artists in the world. It has amplified attention for genres that were held back before the streaming era. The company is now on a mission to capture attention for all forms of audio. It is the attention king. How it wields its power is what we’ll break down today.

How Spotify helped artists gain more attention

Spotify is often criticized for giving too much attention to the major stars. (Who remembers the infamous Drake takeover when Scorpion dropped?) But Spotify reflects consumer preferences, and consumers gravitate toward the biggest names.

In 2021, Spotify announced that 13,400 artists’ catalogs generated royalties over $50,000. According to Music Business Worldwide, that represents 0.2% of the seven million artists who have ever distributed music on the platform. It’s a provoking stat, but remember—Adele releases her art on the same platforms as inactive hobbyists! Music streaming’s power laws are inevitable.

These dynamics exist in most forms of entertainment. In soccer, 0.05% of the 270 million people worldwide who play on organized teams are professionals. The best-selling author in the world, James Patterson, earns nearly $100 million annually, while the average author is lucky to recoup their $10,000 book advance.

Is it harder for artists who once earned a lot from CD sales to earn those same royalties from Spotify and its competitors? Yes. A fan would have to generate 1,250 streams to match what Billboard considers the equivalent of a CD sale. However, these comparisons don’t account for the ways that streaming has benefitted other types of artists, addressed inefficiencies of the CD era, or grew the overall economic pie. Let’s walk through each of these in more detail.