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Comment by dehrmann | Hacker News Reader

Spotify's problem is it has to pay out ~80% of revenue to rightsholders, so Apple's 15% take doesn't leave you with a viable business. For a time, Spotify handled this by charging more for subscriptions from the App Store. I'm guessing Google wanted to get a big name off what would become the Epic suit. They knew Spotify pays ~2% when processing credit card fees, there's a higher conversion rate with in-app payments, but Spotify has a hard fee limit because of rightsholder payouts, so they found a deal that makes everyone happy. Oh, and GCP.

The marginal cost for Fortnite is lower, so Google kept squeezing. It's standard price discrimination. The problem for Google is it also controls the marketplace.

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>>Spotify's problem is it has to pay out ~80% of revenue to rightsholders, so Apple's 15% take doesn't leave you with a viable business.

Any payment fees would be subtracted before the payout to the rights holders, they pay based on NET revenue not gross revenue [1]

[1]https://support.spotify.com/us/artists/article/royalties/

Interestingly the GP's theory sounds 100% plausible if you don't know the difference between net revenue and gross revenue. Humans are really very similar to LLMs...

> Humans are really very similar to LLMs...

So true. I was actually once accused on Reddit of using ChatGPT to write a comment that I genuinely wrote myself, by a person who (if I recall correctly) didn’t like the substance of what I was saying. It was a long detailed response with multiple paragraphs and proper usage of words like “However”. Yes, a LLM may write similarly to people who have lots of experience reading and writing formal written English, including academic and legal writing.

At least my example was purely a harmless Reddit accusation. I really feel bad for the people who write essays in school that the teacher incorrectly rejects and reports as AI-written because the teacher misunderstands the limitations of AI detectors and the meaning of their output. (Of course, this is a separate question from students who genuinely try to pass off AI-written work as their own.)

Surely the revenue is calculated from how much money Spotify actually gets right? If they sell a $10 subscription and get $7 after Apple takes their cut then that is $7 dollars of revenue, no?

Profit = revenue - costs

Wouldn't they be able to say that the actual revenue is just the 85% they get after Apple's take?

No because Apple gets 15% of the IAP price right off the top, Spotify doesn’t cut them a check after the fact with an explanation about rights holders etc.

The part I don't get with the Epic / Fortnite deal, is the last sentence.

"it was one of the highest-profile early members of the Coalition for App Fairness, a group that included Epic and supported the Fortnite publisher’s antitrust suit"

If they support the suit, why not "psst, btw, we got a great deal from Google. You know, have somebody subpoena contract records ..." Instead they're "We got our 4%, we Support you..."

> Google is it also controls the marketplace.

And? Retailers cut deals and do kickbacks with certain merchants all of the time for different reasons.

Some of which are illegal

Wouldn’t it be 30% for Spotify? 15% is only for businesses where iOS revenue is less than $1m.

> Spotify's problem is it has to pay out ~80% of revenue to rightsholders, so Apple's 15% take doesn't leave you with a viable business.

It's the 80% of revenue to rightsholders that makes it a non-viable business.

20% of a very large number is still a large number. There are lots of very profitable businesses that have a ~1% profit margin.

80% of a very large number is an even larger number.

Costco is famously about 2% or so, which is basically the entirety of their membership fee revenue, iirc.

That doesn't mean 20% is their profit. It means all the rest of their overhead has fit into that 20%, such as hosting infrastructure, office space, labor, marketing, etc.

Oh no, how will they cover overhead with 20% of tens of billions of dollars!?

It’s not like they have any control over this. What should they do ? Yeah they could say fuck-off to Universal & Co but it would be their instant death.

Right holders made them sign extremely strict contracts which disallow Spotify to diversify themselves. Notoriously, their contracts with majors states that they are forbidden to develop their own in-house label.

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