Spotify/Netflix: music streaming is proving sticky, but not necessarily more profitable

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Video streaming companies are caught within the doghouse. Viewers, free of lockdown leashes, exit more and watch much less TV at residence. Penny pinching customers have gotten pickier about subscription providers. Netflix misplaced almost 1mn subscribers within the second quarter, after dropping 200,000 within the first quarter.

Improbably Spotify has bucked the pattern. The music streaming group ended the second quarter with 188mn paying subscribers. That is a 14 per cent soar from the yr in the past interval, simply topping analyst expectations. Total customers — which incorporates freeloaders — additionally trounced forecasts at 433mn. The determine is anticipated to succeed in 450mn within the present quarter, together with one other 6mn paid subscribers.

Spotify will get stick for its lack of differentiation. The group sells the identical product — entry to a list of 82mn songs — as cash-rich tech heavyweights Apple, Amazon and Google. This makes elevating costs arduous. Its US premium subscription nonetheless prices $9.99 a month, the identical as when it launched in 2011.

But this weak spot might have change into a bulwark in opposition to a client exodus. Listeners stick with Spotify as a result of they solely want one music streaming service to entry all music. Given the completely different content material on supply, the identical customers might effectively cancel Netflix if in addition they subscribe to different TV streaming providers like HBO Max or Disney Plus.

But stickier music demand does not imply income. With simply three main document labels controlling a lot of the music trade, Spotify has little energy to squeeze down variable prices. While it made €9.7bn in income in 2021, it additionally paid out $7bn in royalties. It ended final yr with a web lack of €34mn.

Advertising income — small but quick rising for Spotify — is susceptible to the slowdowns seen at different on-line tech firms.

Investors’ wariness of lossmaking tech firms is mirrored in Spotify’s depressed share value. At $118, these are value only a third of their 2021 peak. Spotify should extract more money from loyal subscribers to vary that.

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