How Spotify stayed No. 1 in streaming audio even with Apple, YouTube and Amazon aiming for it

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In this weekly series, CNBC takes a look at companies that made the inaugural Disruptor 50 list, 10 years later.

Spotify, once a Swedish startup tasked with tackling music piracy issues, is now the most popular audio streaming subscription service in the world.

First launched in 2008, the platform began as a way to allow listeners to stream their favorite songs while still compensating artists for their work – a major issue caused by file-sharing services at the time, like Napster and LimeWire, which severely affected music sales as the services had no legal rights to the music.

Today, Spotify has more than 80 million tracks available to users to stream. In its most recent earnings report, the company touted its 456 million active users with 195 million paid subscribers across 183 markets. The platform disrupted the audio streaming field – being named to the CNBC Disruptor 50 list in 2013, also making appearances on the list in 2014, 2015, 2016 and 2017 – and set the blueprint for audio streaming services to come.

Spotify’s success quickly caught the eye of major technology competitors, who have since released their own streaming music platforms such as Apple Music, YouTube Music and Amazon Music. But even with competition and uneven stock market performance, Spotify has stayed at the top of the charts, as the No. 1 audio streaming service and has kept pace on subscription prices.

Its $9.99 monthly premium plan has remained unchanged since it launched in the U.S. in 2011, and it is still as low as any competitor. Apple recently raised its monthly price by $1 to $10.99. (Amazon Prime members receive its unlimited Music for $1 less than its non-Prime price, at $8.99). The pricing tweaks continue between the players in the streaming music space. YouTube Music’s family plan is $14.99 a month; Amazon this week raised its family plan from $14.99 to $15.99, equal to Spotify.

Daniel Ek, Spotify co-founder and CEO hinted at higher prices in the U.S. next year in a conference call following Spotify’s most recent quarterly report, saying that increasing subscription prices “is one of the things we would like to do and it’s something we will [consider] with our label partners.”

“We’ve actually done more than 46 price increases in markets around the world,” Ek told CNBC in October. “And many of those markets have had way more inflation and way more economic issues than the U.S. is currently experiencing and despite all of that, our subs numbers held way better than expected. We think we have pricing power.”

The competition is making progress on subscribers, with Variety reporting this week that YouTube Music has grown from 50 million subscribers to 80 million in a year. Apple reported an early surge in Music-specific paid subscriber figures back in 2019, at 60 million, but has since focused on the numbers for its overall Services business — which includes Apple TV+, Apple Music, cloud services and others — growing to reach 860 million paid subscriptions.

In 2015, Spotify started evolving beyond music to become the next big name in the audio space, launching its podcast platform in the United States. Now the platform has over 4.7 million podcast offerings and has implemented additional video elements to keep users more engaged.

“We’re constantly trying to move forward with better product offerings, with better programming, with better curation,” Ek told CNBC in 2015. “It’s really about moving faster than the rest, and I really feel we’re doing a pretty good job at it.”

The company most recently announced in September the acquisition of more than 300,000 audiobooks on its platform available for purchase, looking to directly compete with audiobook services like Audible from Amazon.

“We see the opportunity to continue to imagine and explore new verticals across our platform – within audio, but also beyond,” Ek said at the company’s Investor Day in June. “And for each vertical, we will develop a unique set of software, services and products and business models that’s going to be tailored for that specific ecosystem.”

Spotify went public in April 2018 in an unusual direct listing, one of the largest technology companies to do so at the time. The listing was unique since the company already had significant name recognition and had no need to raise capital. The IPO’s launch was considered a success, trading above its reference price on opening day and in a fairly narrow range.

“We set out to reimagine the music industry and to provide a better way for both artists and consumers to benefit from the digital transformation of the music industry,” the company said in its initial filing in February 2018. “Spotify was founded on the belief that music is universal and that streaming is a more robust and seamless access model that benefits both artists and music fans.”

This view has not always been shared by musicians, with many coming out against the royalties being paid in the early years of Spotify’s rise. Taylor Swift removed her catalog from Spotify in 2014 and went as far as to write an op-ed for the Wall Street Journal about the devaluation of music caused by technology. Radiohead’s Thom Yorke was a constant critic of streaming, once referring to Spotify as the “last desperate fart of a dying corpse.”

As the music industry has transitioned to a predominantly streaming one, those complaints have diminished but not the criticism of Spotify. Its shares plummeted by $2 billion in January when the platform faced scrutiny surrounding one of its most popular podcasts, “The Joe Rogan Experience,” spreading misinformation about Covid-19. Artists such as Joni Mitchell and Neil Young, already a longtime critic of streaming platforms, pulled their music from Spotify in protest. The company pulled multiple episodes of Rogan’s podcast with offensive material but Ek refused to drop the personality.

Profitability continues to be the big business issue. Spotify reported wider-than-anticipated losses in Q3, and shares touched new lows.

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Throughout it all, Spotify has stayed No. 1 with a healthy lead over competitors. What is it that keeps Spotify users hooked on the platform? The company credits its personalization algorithms that make the service unique to every consumer. 

Its Daily Mix and Discover Weekly playlists are curated for each specific user with music they love as well as new tracks the platform thinks they may enjoy based on listening history. At the end of every year, the company also releases Spotify Wrapped for every user, creating playlists to highlight their top artists, songs, albums and genres of the year and encouraging them to share their results on social media.

In the next decade, Ek said the company will generate $100 billion in annual revenue — current annual revenue is at a run rate of roughly $12 billion. It wants to achieve a 40% gross margin — the most recent quarterly gross margin was 24.7%.

Ultimately, Ek is aiming for one billion users on a “far more dynamic and open platform.”

“A platform that will entertain, inspire and educate more than one billion users around the world,” Ek said at the company’s Investor Day. “And as the world’s creator platform, we will provide the infrastructure and resources that will enable 50 million artists and creators to grow and manage their own businesses, monetize their work, and effectively promote it.”

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