Changes and Netflix Parallels: Spotify in Motion
Things have been changing rapidly for Spotify. This isn’t anything new, Spotify is an ever evolving company, but now is a good time to regroup and check back on the thesis.
Changes At the Top
Spotify CEO Daniel Ek announced he is moving from CEO into an “European Chairman” role. In his place, Spotify will have co-CEOs in Gustav Söderström and Alex Norström. So what is a European chairman? Well, it sounds like a chairman who actually does his job. Usually reserved for founders, this role heavily focuses on strategy, M&A, capital allocation and board management. In theory, this all makes sense. We will need to see what we see in practice.
Taking Ek’s spot are two different individuals. I don’t love having two CEOs. If you have two bosses, you have none. An example many like to compare to here is Netflix. A massively powerful company that has been operating under a similar split. Maybe its just me, but I think Netflix is a tech company, not a content company. I see the same for Spotify.
None of these changes should come as a surprise, Ek has been signaling these kinds of moves for awhile. Heck, he tried to buy a soccer team. When Söderström and Norström were named presidents, my hope was that this was part of a succession plan, allowing one to differentiate themselves to eventually become CEO. Instead, here is how Ek frames this transition.
Over the last few years, I’ve turned over a large part of the day-to-day management and strategic direction of Spotify to Alex and Gustav–who have shaped the company from our earliest days and are now more than ready to guide our next phase. This change simply matches titles to how we already operate.
At the end of the day, the thesis remains in tact, but this is a crucial inflection point that you need to pay attention to. I’ll be specifically watching who is driving the decision making. If Ek isn’t on the earnings call, who takes the lead on those? My preference is that Ek still plays this role as the Chairman, but if Spotify begins to act more like a media company than a tech company, I’d consider that a major red flag.
The Spotify and Netflix Deal
Speaking of Netflix, Spotify has teamed up with them to roll out some Ringer video podcasts on Netflix. I think Ben Thompson lays out an interesting anti Youtube alliance below:
YouTube is the biggest threat for both Spotify and Netflix. I’ve talked in the past about The Anti-Amazon Alliance; it seems we are witnessing the formation of the anti-YouTube alliance. The difference is that the anti-Amazon alliance was made up of the long-tail of e-commerce merchants, primarily powered by Shopify; YouTube, however, is the long tail of video content, which means that Spotify and Netflix will, at least for now, have to make do with podcasters that made it work independent of YouTube.
Video is a big opportunity for Spotify and in classic fashion, they seem to be trying anything they can find. This is similar to what they rolled out with podcasting initially. Try everything and see what sticks. The reality is everyone is competing with YouTube. I don’t think it is realistic to think Spotify can truly go on the aggressive here (i.e the long tail of video), but instead it will be more of preventing YouTube from owning everything. I don’t think this is a bearish take either, it’s just the reality of the monster that is YouTube. Spotify has out competed YouTube in audio over and over again, but competing in video is a whole different monster. You have to try everything, because the gap is so large.
Wrap It Up
I haven’t hidden my opinion on how Spotify has performed as a tech company (amazingly) vs how they’ve performed from an ad / content business (meh). The clear parallel here is Netflix who have followed a very similar arc (albeit a little backwards, with Netflix now just leaning into a freemium model). From the Ek news to the Netflix deal, Spotify is a company in motion. Given the change, you probably just need to watch a little closer than normal over the next year as these changes start to reshape Spotify.
