Spotify CFO describes company’s “co-dependent relationship” with the big three labels
Spotify‘s chief financial officer, Barry McCarthy, knows a thing or two about marketplace competition. The former Netflix CFO came on board with Spotify in June of 2015, where he is largely credited as being the architect behind the company’s rather controversial public offering — namely because Spotify’s direct listing (SPOT) cut out the middleman bankers in the traditional IPO route.
During a recent interview at the Goldman Sachs 27th Annual Communacopia Conference, McCarthy revealed some telling information about competition in the music streaming wars, and attempted to make a case for Spotify’s continued cooperation with the major music labels.
On Spotify’s rivals, McCarthy says the platform is working to build out a “bigger ecosystem” than Apple by fostering partnerships with Microsoft, Samsung, and Google‘s Android. He admits that the iPhone affords Apple Music a huge “competitive advantage,” but that Spotify’s wrangling of multiple tech companies in their back pocket may enable them to compete. “If we do that well, I think our business will prosper, he said. “If we don’t? Roadkill.”
McCarthy also took a jab at rival, Amazon, claiming that the company doesn’t seem too interested in churning out their Music Unlimited service as a viable long-term product: “they don’t really care how engaged you are in the music service as long as you become a Prime subscriber.”
Then McCarthy gave little hope to the smaller, independent streaming services, alluding to the music streaming business as the big leagues in terms of capitalizing power. “It’s fair to say at this point, if you’re relatively small and under-capitalized, it’s kinda game over for you,” he continued. “Even if you haven’t figured it out yet. It’s a scale business.”
“There are three labels who own most of the marketplace, and they have oligopoly power, and we can’t be successful without them as partners … we have driven all of their revenue growth, and they can’t be successful without us as business partners. It’s important for both of us that we never allow the relationship to become a zero-sum game.”
McCarthy also pushed back on pressure from the “big three” to raise subscription prices from the industry baseline of $9.99 per month. “They do want to see it grow, and I don’t,” he said of labels. “What you want is revenue to grow, and you should want our market share to grow.”
Spotify has been embroiled in a antagonistic relationship with major music label executives lately due to certain business strategies — from directly licensing music to independent artists to allowing independent artists to directly publish music on their platform — essentially cutting out the distribution phase.
Speaking to Bloomberg, Macquarie analyst Amy Yong describes Spotify’s relationship with the “big three” rather succinctly: “[I]t’s a strange relationship because the record labels want Spotify to succeed, but not too much. It gives them too much leverage.”
Photo credit: Ilya S. Savenok/Getty Images for Spotify
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