Netflix vs Spotify: profits and costs

It seems like we are living in some sort of golden age of streaming. Virtually all forms of media are at our disposal at this point in time. It doesn’t matter the medium of entertainment: music, film, or television shows, they are all only a click away. Spotify, Netflix, Hulu – you name it. However, controversy has been brewing for quite some time since streaming became something of a consumer norm. Issues include compensation for artists and producers, exclusive content for being on one particular service, and the crowding out of older businesses. But this isn’t all there is to streaming, as some companies have it better than others; simply because one is centered on movies and TV shows and the other is centered on music.

Despite impressive growth, Spotify makes less profit than netflix

There’s no doubt the most popular music streaming service, Spotify, has been doing better than its main music streaming competitors, Apple Music and Tidal. But how does Spotify match up with the streaming giant, Netflix? According to MIDiA Research, Spotify managed to surpass Netflix’s number of paid subscribers at the end of 2016 by one million users. Both companies are riding their own coattails as they have been experiencing exceptional growth rates the past several years. With all this good news, what is it about Spotify that makes it fall significantly short of Netflix in terms of profits?

Facing the facts

Netflix’s costs to buy the content they provide for customers may be more expensive than Spotify’s, but their profits are much higher. Netflix’s service is more profitable because of their ability to gain revenue from subscribers is structured more efficiently than Spotify’s. A music streaming service like Spotify has to pay in advance for the music that might be streamed by subscribers, even if certain artists never get streamed.

Musicians themselves are reluctant about, if not occasionally hostile towards Spotify. Musicians rarely want to help Spotify in a way that will increase Spotify’s profit margins because their model is already set up to make artists feel like they are being left shorthanded. Emily Wolfe, a musician here in Austin, weighed in on her ambivalence towards Spotify in a comment to City Gram: “If Spotify paid $1 per play, I’d be set financially — but right now; pay per single play is a fraction of a penny. I love Spotify for many reasons, but there are definitely a couple of downsides.”

Can anything be done?

For Spotify, this constant battle between low payouts to artists for the music they stream on their platform and trying to increase their profits seems endless. Netflix, despite all the high costs they pay, actually owns a significant amount of the content they provide. Every time we all go nuts over the newest season of “Orange Is The New Black” or “House of Cards”, we’re only helping to solidify Netflix’s high profit margins. On the flip side, people would be extremely confused if Spotify suddenly announced an album they produced. But what if this album was actually really good? What if it blows our minds away like “House of Cards” did when it was released? Maybe content creation, rather than content curating, is something music streaming services like Spotify could look into – especially since they’ve become the most popular way to consume music.