Why are Netflix and Spotify so different?

2015-11-22 3 min read

    The news that Adele was not going to put her new album on the streaming services got me thinking about the differences between the way music and video are consumed. Just last week Rdio announced that it’s selling its assets to Pandora which is a reminder of how hard it is to start a music company - music labels wield all the control and are able to dictate the terms they want. Even Spotify is not yet profitable despite having millions of subscribers.

    On the flip side we have Netflix which on the surface provides a very similar product - streaming video rather than streaming audio. Yet they’re profitable and are quickly expanding internationally and even developing critically acclaimed shows such as Narcos and Master of None.

    I find it fascinating that although the two industries are so similar on a technical level they’ve played out so differently. Part of it is that audio consumption is just drastically different than video. Most people will stream music throughout the entire day at work and not mind repeats of a favorite song while shows and movies are watched in shorter bursts and I like to think that most people want to avoid repeats. I’m not a huge music listener and the music I enjoy tends to be available on every service but I suspect most people who are passionate about music want access to a band’s entire catalog as well as having immediate access to new releases - this is something that Spotify needs to provide that Netflix doesn’t have to worry much about. Netflix can survive on the back catalog alone while Spotify needs to bend over backwards to make sure they have the most recent releases.

    Netflix has moved into producing their own shows which is allowing them to get ahead of the back catalog problem and move into the HBO model while still having access to a slew of old shows and movies.These are divorced from their creators and can stand on their own while music has extremely strong ties to the artist. This makes it extremely difficult for Spotify to apply a Netflix model and start producing albums - the only way they’d be able to make it work is by becoming a music label. Netflix on the other hand can pay top directors and actors to develop a show that can succeed or fail - but in either case it’s only loosely coupled with the creators.

    I can’t find the blog post now but I read something a few days ago about how hard it is to build a successful music startup. The root cause is that the music labels have so much control and power that they’re charging a license fee that prevents startups from having any money to spend on innovation or product. Instead they’re transferring money from venture capitalists into the hands of the labels. The labels are basically the rentiers of the music industry and prevent innovation by sucking up investment that can be used to launch new products. My gut is that this won’t last since there’s just too much happening in adjacent industries but I’m crossing my fingers.