Sharp Tech with Ben Thompson - A Beginner's Guide to Spotify and Emails on Antitrust and Algorithms

Episode Date: November 10, 2022

An email about Netflix spawns an extended overview of Spotify's present and future, a closer look at Apple Music's royalties messaging, reactions to the permanent injunction block Penguin Random House's attempted acquisition of Simon and Schuster, and the two most important features we need from Twitter Blue.

Hello and welcome to Sharp Tech. I'm Andrew Sharp, and this is a free preview of today's episode. I have another question related to Spotify. We're going to incorporate Apple Music as well. Jorge says, I would love Ben's take on this article. And the headline to the article is, this is how much more Apple Music pays artists than Spotify. And Jorge adds,

I am 100% in the corner of artists and think they should get as much money as they, they can, but I'm specifically upset with this comparison because this is where I think Apple is flexing its monopoly power. Of course Apple can pay artists more. They don't need Apple music to be profitable and they don't subject themselves to the app store tax. This isn't a level playing field for Spotify and if people start making their decisions based on artist pay rates, it's going to be tough for Spotify to compete. So related to that, you can, can answer that question.

I want to answer, I want to answer right now. This isn't about Apple flexing its monopoly power. This is about Apple being disingenuous. The reason why Apple, Apple does not pay artists a higher rate. Apple says the rate we paid artists was higher. Now, what I mean is Apple insinuates that, look, we pay artists a cent per play. Spotify pays them like 0.0 or whatever the number is. that is not a contractually defined number.

The amount that is paid out is a function of how often the music is listened to. And the reason this matters is that every listener to Apple Music is a paid subscriber. So everyone there is paying $10 a month or this price increase is going to be paying more per month. And that flows through, again, because the function of what you pay labels is a function of how much you get from subscribers. Spotify on the other hand has an ad-supported tier where people can listen. They have less fine-grained control. It's hard to specify. It's more listening to Playlists and things along those lines.

But they have hundreds of millions or whatever of free listeners, which Spotify argues, and I have no reason to doubt them, convert steadily to subscribers. But by definition, all these people, you're making much less money from them because you're only making money from the ads that they listen to. Now, the labels get a share of that ad money. But the average cent per play is much lower on Spotify because the plays are much higher. But the absolute amount that Spotify is paying is much higher than Apple Music. So Apple's being super dishonest here because they don't have an ad tier, that's why their average per play is higher because all their customers monetize at a much higher rate. If you take the blended revenue per customer from Spotify, it's way lower than Apple because that includes all these free customers.

So Apple is, it's not a lie, but it's effectively a lie that everyone, yeah, it's purposely misleading. Like they did a whole press release on this. And this press release, they're like, that's why I was so careful of my language at the beginning. We average a payout of one. Whatever they put it. And like Spotify pays on a paid subscriber basis.

is Spotify pays the exact same amount as Apple or within a fraction of a percentage point because it's all negotiated. Like so Apple's... Well, and overall, it sounds like Spotify can often pay more based on free... On an absolute basis, they pay more for sure. Now, to the extent Spotify is less,

it's because they have more plays. And this is why people so much on the internet, they get stuck in relative numbers versus absolute numbers. If you're an artist, would you rather be on a service that has fewer plays of your music or on a service that has more plays and you get, or fewer plays your music, you get a higher per play number, or on a service that has more plays of your music, a lower per play number, but more money total. Right? Like that's like Spotify is paying artists more than Apple. Apple is just using this one metric of a per play to because they have a different business model. So as far as the. competing business models. You mentioned in an aside earlier that Spotify successfully responded to Apple Music.

How did they do that? In theory, like music is like a commodity, right? You can jump to it to a different one. And actually, I think that's an advantage for Spotify. I think I underappreciated that previously. Like Netflix is showing if you have to compete on a content basis, that's tough. Like you're in the content business. Spotify's not in the content business, right?

And to the extent they tried to get in the content business, with these exclusive podcasts, they probably wasted a whole bunch of money. Spotify is in the discovery and user interface business. And that's a much better place to be because that's much more under your control. So I think what Apple is Spotify is number one, like just, you know, people build up playlist. They like Discovery Weekly. They listen to the podcast there.

And it's a massive pain in the rear end to switch to Apple. Yes. Like there's this other podcaster who paid for Apple one. So you got Apple Music for free. And he just complains. every single week about how much he hates Apple music. And because he's being cheap because he's like part of the bundle. But most people are just like, you know what?

Not worth the trouble. You know, it's too difficult to switch. Like I already have all my stuff there. Spotify's done great stuff like at the end of the year. Like everyone posts their Spotify list and all those sorts of things. Like Spotify is very much in the in sort of the gestalt. Like that's kind of like what like the cool service. And they're building up in theory.

The advertising, we talked with the beginning. If that works, that's actually a reason for artists and labels to favor Spotify. Because there's a real sort of win-win here. Now, Apple Music certainly blunted Spotify's growth. At Spotify only been the major, only major stream service, I'm sure it'd be even larger than it is. But it is worth knowing, though, to go back to this emailer's point. Although he was wrong on the specifics, the broader point is obvious. It's patently, it's patently, patently unfair and anti-competently.

competitive that Apple gets to sell the exact same service as Spotify, but with a 30% advantage. It's nuts. It boggles the mind. It's even worse with this e-books thing. Oh, the e-books thing is so bad. The audiobooks. Audio books, yeah. Yeah, I mean, I cannot believe. Well, an audio book is technically an e-books. So I guess it's- It's true. It's all the same family. They're all bits. But man, oh, man, I cannot believe the audacity on Apple's part to try to take 30% of everything and then also make it really difficult for Spotify to just redirect people, right? Like that's where they've intervened in the past to try to.

Well, so there's a lot of context here. So Apple, so Apple used to let you link out years and years and years ago. Then they killed that because the Kindle app was was linking people out to the Amazon website. That's why it was because of Kindle that they killed it. And it's by the way, when they had it when they were launching iBooks, it was it was purely done to to support their business. that was that was competing directly with the business they were kneecapping. And it's not consumer friendly. It annoys the hell out of me.

Every time I have to go to Amazon's website to buy the Kindle book that should just be a one-click situation in the app. Which Apple has nothing to do with. Apple didn't produce the book. They didn't write the book. They didn't pay the publisher. By Amazon, books are also similar to music and that you have to pay a share of revenue, usually to the publisher.

So you literally can't sell it profitable. if you had to pay the app store tax. It's unbelievable. Like the ebooks and music things are unbelievable because Apple has directly competitive businesses that are fundamentally, they, by a policy choice, are fundamentally limiting. And meanwhile, the EU, guess what? They just turned out they're going to now investigate Facebook for their marketplace. Like, what are we doing here?

It's unbelievable. Like, let's investigate Facebook for acquiring a VR exercise app. Meanwhile, Apple is literally kneecapping its direct competitive. for because they can. Well, a fun journey for Sharp Tech listeners is going to be watching Ben slowly lose his mind over the next several years as regulators focus their energy everywhere. Well, it's fine. The journey started on an exponent. So I guess it's a long-running one.

I mean, it's just, it's, I mean, I think the reason it bothers me is number one, it's just, it like, it just is unfair. Like, it just is unfair. And that irks me just in general. general. Number two is I feel very burned because one of the implications of these aggregators is they raise very serious antitrust concerns. When I first wrote aggregation theory in 2015, my follow-up article, a week or two later, is like, look, these are antitrust problems, you know, XYZ, blah, blah, blah. And then I talked a lot about Facebook's acquisition of Instagram, why it was problematic. You know, I did call it at the time. It was problematic. And so

like, I like, there's stuff needs to be, the stuff needs to be done here. what's frustrating is when you see no one caring about Apple and not just focus on like Facebook, Instagram, but then all this stupid stuff to the side, it really just feels it's this is all politics. And I know all the old listeners or old, you know, people more experienced than me in life are like, yeah, dummy. That's why you should have were dumb to ever ask for it. But I feel it feels like it's, it's just disappointing.

And I feel like a moron forever arguing for any sort of antitrust stuff in tech. If this is how it's going to be practice, where we're going to say that Facebook and TikTok aren't competitive, that that's going to be our antitrust take. And we're going to ignore what I think is one of the most blatant antitrust actions, like way worse than what Microsoft did. Well, IBM was doing. And it's very, what's the word I'm looking for? Producese. No, it's dis, there's a word. Disillusionment.

Disillusioning. Disenchanting. Yeah. Yeah. It's very frustrating. And we talked about it on the ATT episode a month or two ago. It is unfair and offends me almost as an American. I'm not a fan of corporate abuse. And I feel like that's something we learn early on.

Right. But even ATT, you can like, okay, I can get the privacy. I think it's disingenuous. But you can see an angle. This bit, like our bookstore does not pay 30%. And our music service does not. And you do. This is the most brazenly illegal thing that they're doing. Like even with the laws we have now and the interpretations we have now, the fact that there's been no enforcement is baffling.

And you wouldn't need to adapt. I think we need to adapt in several other areas. And we'll get to that in a minute here. But you don't actually need to update anything to account for what Apple's doing here. The other thing is, I don't want to focus too much on just the app store because Jorge's larger point is Apple doesn't need it to be profitable. And Amazon is also leaping into the streaming fray. It was reported last week that their streaming service is jumping from 2 million songs to 100 million songs. And that service is going to be available to all prime members.

And the point is, those are going to be lost leaders for both of those businesses. and neither Amazon nor Apple will ever care and will ever need to pay attention to the margins or anything else and they can just slowly bleed customers from a service like Spotify that actually has to worry about making a profit. And that's not the way the free market is designed to work. And so there are lots of different little sectors that get distorted as a result.

of the unbelievable market power that both of those companies have. Yeah, I'm a little more on the fence when it comes to bundling. I mean, this is what you're talking about. Obviously, Microsoft is the same thing. Like,

like, you know, has one of Slack's complaints about why teams killed them. Well, they ever got teams for free, right? You need to pay for this separately. I do think there's an aspect in Spotify's probably a good example of this,

where Spotify is just a better service than Apple Music, in part because Spotify is heavily incentivized because they have to make it work. Apple music is terrible, right? Like, it clearly doesn't have sufficient investment from a sort of app perspective from a user interface perspective for sure in a fair fight uh apple music would be much smaller than it is and Spotify would be even larger uh that said the consumer benefits of bundling are pretty substantial and so that is a that is a counterweight to the point that you're making all right and that's

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