Panic Among the Streamers

Spotify's losses get worse, and the CEO dumps $100 million in stock—but that's just a small part of the crisis

Don’t pay any attention to what CEOs say. Look instead at what they do. And ALWAYS follow the money trail.

Consider, for example, the Hollywood writers’ strike. The producers’ collective bargaining organization explains that the studios aren’t really obsessed with substituting AI for people—they merely want “a balanced approach based on careful use, not prohibition.”

But almost at that same moment, Netflix has listed a $900,000 job opening for an AI guru. That doesn’t feel like a balanced approach to me.

It looks like they’re hellbent on replacing creative professionals with bots, and the faster the better.

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This is not a good look for studios in the midst of a massive labor dispute. They are squeezing skilled professionals who make a fraction of that amount—but reach deep into their pockets to subsidize the robots.

Netflix could buy 10 top quality screenplays per year with the cash they’ll spend on that one job.  They must have big plans for AI.

There are also a half dozen AI job openings at Disney. And the tech-based streamers (Apple, Amazon) already have made big investments in AI. Sony launched an AI business unit in April 2020—in order to “enhance human imagination and creativity, particularly in the realm of entertainment.”

Phew, that’s a relief. I thought they were doing this just to eliminate jobs.

The next phase will see entertainment companies acquiring AI startups. This will be the hot new thing in music. A year ago, the big trend in the music business was buying up the rights to old rock songs. Next year it will be acquiring AI companies.

But no strategy lasts very long in the fragile streaming economy. The level of anxiety in the corporate offices has risen steadily for the last two years. But it’s now reached a panic level.

A year ago, the big trend in the music business was buying up the rights to old rock songs. Next year it will be acquiring AI companies.

Do any of the industry leaders have a secure job? Netflix already replaced its CEO in January. And over at Disney, Bob Iger was pushed back into the CEO job less than a year after he retired as chairman, because his successor Bob Chapek faltered so badly.

Iger’s contract lasts through 2026, but can he possibly survive that long?

I was a Disney shareholder for almost 15 years. I made an investment in August 2008 at $31.78 per share—and I had great confidence in the business back then. But by March of last year, I’d lost faith in the House of the Mouse, which was stumbling on so many fronts. I sold at $140.17, so my returns were fine. But I certainly didn’t get out at the top—which was $201.91 on March 8, 2021.

But I’m now looking smart. Sure, I missed the top, but Disney is down almost 40% from my exit price—and close to 60% from its high point. If this stock chart were a ski slope, it would be too steep a decline for even the most seasoned pro.

Disney long term share price (Source: Macrotrends)

But if you really want to see panicky executives, just take a look at Spotify.

Daniel Ek, the CEO, is selling $100 million in Spotify stock. This couldn’t happen at a worse time.

The company’s quarterly results, released earlier this week, showed another huge disaster—a net loss of 302 million euros, or 1.55 euros per share. That was much worse than expected, and twice as bad as last year, when Spotify’s quarterly loss was 125 million euros, or 0.85 euros per share.

The bigger the company gets, the more it loses money.

Consider this ominous fact: When Spotify launched on the stock exchange in 2018, it was losing around $30 million per month. Now it’s much larger, and is losing money at the pace of more than $100 million per month.

Of course, the share price took a huge hit. It actually dropped 14% in just one day earlier this week.

Spotify finds itself in the awkward position of asking people to pay more for a lousy interface that degrades the entire user experience.

Did the CEO’s huge share sales cause that drop? Or are other investors dumping their shares too because of the big losses? Maybe both—it’s hard to say. But the most ominous part of this story is that the shares collapsed after Spotify announced an increase in subscription prices.

I predicted this price increase years ago—arguing that an all-you-can-eat music streaming plan for under ten dollars would never work. As it turns out, the company finally agreed with me.

There’s a risk that fickle consumers will cancel their subscriptions rather than pay the increase. But if I was running Spotify I would take the risk. Music shouldn’t be cheap, and it certainly shouldn’t be free.

Companies like Spotify send the wrong message when they sell it for the price of popcorn at the movie theater (ticket not included).

But the real problem at Spotify isn’t just convincing people to pay more. It runs much deeper. Spotify finds itself in the awkward position of asking people to pay more for a lousy interface that degrades the entire user experience.

Spotify created this mess. And the other music platforms are no better.

• Boredom is built into the platform, because they lose money if you get too excited about music—you’re like the person at the all-you-can-eat buffet who goes back for a third helping. They make the most money from indifferent, lukewarm fans, and they created their interface with them in mind. In other words, Spotify’s highest aspiration is to be the Applebee’s of music.

• They have worked to make music into something generic, promoting bland mood-oriented playing lists. If you don’t believe me, believe my shrewd nephew.

• They still won’t tell you the names of musicians or provide liner notes or give any substantive information on the songs you hear—because that might make you more loyal to the recording artist, and thus detract from the streaming platform’s leverage.

• They need to prepare for a possible royalty war against record labels and musicians—yes, that could actually happen—and they do that by creating a zombie world of brain dead listeners who don’t even know what artist they’re hearing. I know that sounds extreme, but spend some time on the platform and draw your own conclusions.

• The search engine and discovery function at Spotify are maddeningly bad. I can only surmise that the same motivation is at work here—making it as hard as possible for you to control your listening experience. The more passive you are, the more you can be manipulated to boost the platform’s profits.

• This allows Spotify to substitute fake artists and AI tracks that are potentially more profitable for them, although less exciting for you.

They do all this to improve profit margins, but it makes music listening a bland, uninspiring experience.

And now they need to convince people to pay more for that.

Spotify’s highest aspiration is to be the Applebee’s of music.

There is a fix for this. But it won’t be easy. It starts with creating an exciting music interface that celebrates artistry and creativity. If they do that, then it’s easy to boost the monthly rate.

But what if you’re a CEO who doesn’t really know or love music? And what happens if you built a whole management team of technocrats who are similarly out-of-touch?

There’s not much you can do in that case. Perhaps you can sell your stock before it falls much further. And maybe—just maybe—you can hold on to your high-paying job for a little longer.

But even that is doubtful. So I fully expect to see more bosses lose their jobs in the entertainment world. In the meantime, expect the panic to get worse, and lead to more desparate measures.