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Comment by hasoleju | Hacker News Reader

I'm a heavy user of spotify. Almost everyone I know uses it daily. I don't understand why they are not able to turn this much engagement into profit.

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Spotify is a public for-profit company with shareholders, the purpose of their organization is not to make profit so they can redistribute it, but to increase the share value as much as possible in order for the shareholders to benefit. Sometimes that means that they need to increase profits, but not always, there are other ways to increase the share value besides profits.

Such as?

Reducing operation costs (labor), selling valuable assets are two that immediately come to mind.

Both of those result in increasing profits.

My bad, I misread what the person you were replying to asked.

"Hype" is a common way for "modern" companies to drive up share price, see TSLA for a good example of that. Greenwashing is another, not as common approach.

Look at Tesla’s net income:

https://www.macrotrends.net/stocks/charts/TSLA/tesla/net-inc...

That is not hype, that is cash.

Right, so you're saying that Tesla is a company that would never do anything to increase the share price, besides trying to increase profits?

Companies can do whatever they want, it does not mean it will work. No company’s share price is going to up for years and years because of “hype”. And the hype is for future profits anyway.

The point is Tesla earns a lot of money, and has a good, proven trajectory.

Net income is not cash.

Close enough for the purposes of this conversation. Point is, they earn more money than they spend, the gap between those is growing. And they did it in a high barrier to entry business.

They are likely not charging enough for their costs. A lot of unsustainable businesses are like that. Users love it because of the low prices and high perceived value - think Uber.

Anyone remember Grooveshark? Great service :-D

Spotify basically started as a P2P Grooveshark that promised to pay royalties. Now they are a CDN that pays royalties. The problem is that they refuse to accept the reality that there is an end to growth.

They have opportunities to leverage their massive footprint by vertically integrating. They could begin to acquire talent and exclusively release their music and prioritize it in their algorithms or forge agreements with existing labels that create this sort of arrangement. They would then have leverage to negotiate better deals with 3rd party rights holders.

In essence a type of payola since they have a lot of sway in picking winners and losers. They sort of tried this with podcasts but I’m not sure those move needles like music can.

So yeah their current model may be limited but they have a lot to work with.

They are certainly doing that. But that is only a solution to the select few who are chosen to be vertically integrated with!

They have also vertically integrated in the opposite direction: by making deals with large media corporations, and also by implementing DRM (to appease those media corporations).

So at this point, there isn't much vertical integration left to be had. Any more deals with individual artists (or labels) would really just be horizontal integration.

> So yeah their current model may be limited but they have a lot to work with.

That limit is practically the entire worldwide music industry. They are very close to that limit, and seem utterly ignorant about it.

An alternative viewpoint: Their costs are too high for what they can reasonably charge. Hence the layoffs. They could probably cut half of their workforce.

Their workforce is a fairly small part of their costs.

Page 1, the R&D, sales and marketing, and general and administrative expenses are probably almost all payroll expenses. And they are basically equal to or exceeding gross profit, which means payroll is a huge expense.

https://s29.q4cdn.com/175625835/files/doc_financials/2023/q3...

Why are you comparing it to their gross profit and not to the rest of their costs which is what I said?

Ultimately Spotify's staff costs are significant because they were throwing people at trying to make the podcasting business work, which was a failed bet but they need to do.

The main issue though is that buying licenses to music is just too expensive for the amount of money they charge, and they need to license less stuff or charge more money.

Because of the expenses Spotify can control, payroll is (seemingly) its biggest one. Spotify is never going to be able to reduce the proportion paid to the music owners.

They have 9500 employees. Just salaries alone at a very conservative (for american standards) 75000$ average make up 700 million dollars a year, excluding healthcare and other expenses. Payroll is definitely a huge cost.

> I don't understand why they are not able to turn this much engagement into profit.

Because any growth in profits that spotify sees will quickly be eaten by music rights holders.

> I don't understand why they are not able to turn this much engagement into profit.

They will never be able to, regardless of how much they pricing the platform, the music majors will renegotiate and ask all of their profits.

I am a cynic here but part of me feels that with such low interest rates for so long, a lot of companies in tech could ignore profitability so long as they were hitting that MAU and related targets.

> Almost everyone I know uses it daily.

Counterpoint: almost no one I know uses it. It was fun at first but became boring fast, a bit like Netflix. If I want to listen to music I use youtube.

Same, most people I know use Apple Music while others use YouTube Premium

I am one of the 8 people in the UK that use Apple Music. Literally everyone uses Spotify outside of America.

Paerhaps in your circle of friends. But spotify is not that popular. I wouldn't be surprised if their numbers of users are doctored. I know travel sites count the number of devices used by the same user as distinct users. One reached a number higher than the actual world population, people starting asking questions, and then they clarified it. It helps with marketing when you create the impression that "everyone uses it". For instance Threads has more users than OpenAI's chat bots but people think there are more users of the latter due to marketing. Spotify claims to have 226 million subscribers - as many as there are yahoo users. Yet I guarantee you that Yahoo is not popular. And neither is Spotify.

The penetration rate is pretty obvious when you look at social media at this time of year. Everyone has posts of their Spotify Wrapped. 226 million doesn't seem that high when it's the only music streaming service that most people in Europe are even aware of.

> that most people in Europe are even aware of

Care to link to evidence?

> Everyone has posts of their Spotify Wrapped.

Did someone check with _everyone_? It feels like when people make such statments they refer to their own bubble. "It is known" is not a valid argument.

226 million paying subscribers versus free Yahoo users is maybe the biggest apples-to-oranges I've heard in my life.

This is like the HN trope of “nobody uses Facebook / Instagram / [other social media product] anyway.”

These services are global with hundreds of millions of users or more. There’s nothing useful to be extrapolated from the usage patterns of yourself and a handful of friends.

(Personally I only listen to Amiga MODs and watch 8mm home movies of my mother while whistling the theme from “Psycho”.)

And here I am with my "definitely legit" collection of MP3s I keep on my phone and PC, played on Winamp 2.95.

Counter-Counterpoint: I got two teens in (American public) high school - they claim "everyone" uses Spotify and grumble about our YouTube Music/Premium subscription. ¯\_(ツ)_/¯

A huge amount of revenue goes into paying royalties

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