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Spotify’s Very Expensive Podcast Moat
Music streaming is crowded with competitors. Can Spotify’s podcast gamble keep it ahead of the pack?
“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” — Warren Buffett
Music streaming is a business with bad economics. The industry’s byzantine licensing structure has many mouths to feed. For each dollar that Spotify earns streaming music, over $0.60 goes to artists, labels, and publishers. This doesn’t leave it much to build a reputation on.
Smart Pipes Become Dumb Pipes
Before the internet, buying music meant going to a store to buy a digital file on a plastic CD. Napster changed this by launching (illegal) peer-to-peer file sharing. Instead of buying whole albums, users could download single tracks. Unlike record stores, online shelf space is unlimited. People could access any song. Record stores became redundant. RIP, Tower Records. This is a classic case of the internet disintermediating the middleman. Distribution innovations, like the shift from physical CDs to digital downloads, enable new business models while hamstringing others.
