Ted Gioia: evaluation

Transcript context

…Now, you also have a background in management consulting and venture capital. So tell us, does Spotify have a viable business model, yes or no? I’m well known as a critic of streaming, and I also believe that the economics of streaming are fundamentally flawed, but I don’t believe it’s going to go away. I do believe there’s going to be a painful retrenching and downsizing. We already see Netflix, which has $15 billion in debt, announce the other day they’re going to borrow $2 billion more. They’ve got a huge audience, but they can’t even cover their costs. They’ve been negative cash flow every quarter for five straight years. Spotify still isn’t profitable. I believe Spotify will become profitable, but they’re going to do it by putting the squeeze on people. Musicians will suffer even more, probably, in the future than they have in the past. What’s good for Spotify is not good for the whole music ecosystem. Let me make one more point here. I think it’s very important. If you go back a few years ago, there was a value chain in music — started with the musician, worked for the record label. The records went to the record distributor. They went to the retailer, who sold the record to the consumer. At that point, everybody in that chain had a vested interest in a healthy music ecosystem in which people enjoyed songs. The more people enjoyed songs, the better business was for everybody. That chain has been broken now. Apple would give away songs for free to sell devices. They don’t care about the viability of the music sub-economy. For them, it could be a loss leader. Google doesn’t care about music. They would give music away for free to sell ads. In fact, they do that on YouTube. The fundamental change here is, you now have a distribution system for music in which some of the players do not have a vested interest in the broader musical experience and ecosystem. This is tremendously dangerous, and that’s the real reason why I fear the growth of streaming, is because the people involved in streaming don’t like music. In fact — and this is amazing — the CEO of Spotify said, “We’re not in the music business. We sell subscriptions. We don’t sell music; we sell subscriptions.” That’s very dangerous, and that tells you that you have parties here that are going in completely different directions, and it’s not going to be good for the health of our music culture. What’s the chance we simply regret the entire advent of the internet?…

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