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Spotify, Netflix Tip-Toeing Into One Another's Territory

Sneaky-1Here we look at Spotify's toe dip into the world of original video content, just as Netflix simultaneously releases music-centric material, while both companies face obstacles to steady growth and profitability.

 

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Guest post by Cherie Hu

Spotify newIf you didn’t notice Spotify trying to be Netflix NFLX -0.28% last week, you probably were not alone.

After years of growing its curational prowess through playlists like the handpicked Rap Caviar and the algorithmic Discover Weekly, Spotify quietly revealed its first foray into original video content on Thursday. There is nothing to “binge-watch”—just a two-minute animated short called “How EDM Changed the World,” the first in a series titled Deconstructing that will explore music’s social and political underpinnings. Created in collaboration with new media company ATTN:, which received $4.1 million in funding from the likes of Ryan Seacrest and Troy Carter in 2014, the premiere provides a sneak peek into Spotify’s ambitious plans to roll out as many as 12 original video series over the coming months.

Yet, “How EDM Changed the World” actually makes Spotify’s video strategy more ambiguous. Only mobile Spotify users, not desktop ones, can stream the video—but viewers can also watch Deconstructing on YouTube, free of charge. This wider availability contrasts with how rivals like Tidal and Apple Music aggressively push forward exclusive content to drive member acquisition. Spotify has historically focused on fine-tuning its data-driven music recommendation features, rather than on acquiring licensed or original exclusives, but the company may have to switch gears if it wants to assert its video competencies in an ever more competitive, fast-paced streaming world.

image from upload.wikimedia.orgWithin 24 hours of Spotify’s launch, Netflix premiered its own original, music-themed video series, with much more fanfare. Directed by Australian film veteran Baz Luhrmann (The Great GatsbyMoulin Rouge) and set in the South Bronx in the 1970s, The Get Down paints a fictional yet raw picture of the birth of hip-hop, and the youthful drama and optimism that accompanied it. The pilot episode is a whopping 93 minutes long—a feature film in itself—and the remaining five episodes average out to nearly 58 minutes each.

Perhaps the most impressive aspect of The Get Down is its roster of influential music players behind the scenes. Hip-hop legends Nas, Grandmaster Flash and Kurtis Blow serve as producers and consultants for the show. The original soundtrack—released jointly by Baz Luhrmann’s label, House of Iona, and RCA Records, a flagship of Sony Music Entertainment—is available exclusively on Apple AAPL +0.25%Music. Luhrmann has even stepped into the competitive curation sphere, compiling several exclusive Apple Musicplaylists around the hip-hop sounds of the late 70s, in collaboration with the show’s Supervising Producer Nelson George. 

Tthe get downhe Get Down is one cog in the growing wheel of original content that is projected to account for over 50% of offerings on Netflix, according to the company’s Chief Content Officer Ted Sarandos. While unspoken, an even more compelling message lies underneath the series that Spotify and other music-industry powerhouses should heed as a warning:video seems to be a stronger entry point into music curation and thought leadership, not the other way around.

Looking at numbers alone, though, this imbalance should not exist. In terms of user base and engagement, both Netflix and Spotify boast impressive numbers that justify their influential status in film and music. Netflix has more than 83 million members watching 125 million hours of content daily—averaging out to around 1.54 hours per user per day. While Spotify has only around 30 million paying subscribers (out of over 100 million users total), the average amount of daily listening for its cross-platform (mobile and desktop) users eclipses that of Netflix, reaching nearly 2.5 hours.

Both platforms are also facing heightened scrutiny from Wall Street. Netflix failed to meet growth expectations last quarter as its recent price increase from $7.99 to $9.99 caused some customers to cancel their subscriptions, while investors are skeptical about Spotify’s ability to grow into its $8 billion valuation ahead of its highly-anticipated IPO next year.

More significantly, Netflix and Spotify have fundamentally different approaches to cultural transformation that will likely impact how successful their music video content will be. Netflix popularized the all-in “binge” culture among digitally-native TV fans, while many of Spotify’s features are intentionally background or passive experiences (Spotify Running, or playlists like ”Your Favorite Coffeehouse” and “Afternoon Acoustic”), in line with the mission to provide “the soundtrack to your life.” Netflix uses in-depth data analysis to craft shows that its wider audience will love (House of Cards), while one of Spotify’s strongest selling points is applying data science to strictly scheduled hyper-personalization (Release Radar).

Some may argue that in order for Spotify to make a genuine splash at the intersection of music and film, it would have to release much longer, higher-profile videos along the lines Netflix’s 2015 documentary What Happened, Nina Simone?. As of right now, this is a financially and ideologically bad idea. For one, Spotify doesn’t have the cash—the service has yet to be profitable, and it had to pay 83.6% of its revenue to rights holders last year. Secondly, this move would not align with Spotify’s unique value proposition to the music industry, and would only make all of its stakeholders more confused.

A similar dilemma exists for Netflix, which already has a thriving Music division but works primarily with sync licensing for its films. To disrupt the music streaming space, one could argue, it may have to start developing talent in-house, or even provide music streaming as a separate service within its platform. This would only lead to additional upfront licensing costs and likely a higher subscription price, which may cause more attrition.

Even if the streaming service of the future will be a hybrid of today’s dominant competitors, these companies cannot adopt a blanket strategy on the path to convergence, and they have to approach this differentiation intelligently. Netflix proved its unique ability to rally some of the music industry’s most influential players behind its latest show. Practically speaking, Spotify can’t release its own Get Down, but it will have to use its own strengths to do even better.

To follow more of my thoughts about music, technology, creativity and business, you can find me on Twitter and/or sign up for my newsletter, Water and Music.

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