WHO'S THE CUSTOMER?
Spotify's Acquisition of 'Heardle' and what it means for Artists (and their Teams)
“All in the game, yo… all in the game”
Omar, ‘The Wire’
As I wrote, in my recent article - recording artists, producers, and songwriters are not Spotify’s principal customer - the ultimate customer is the everyday listener; and as an enterprise, Spotify is in the business of increasing and retaining customer engagement on their platform. In other words, Spotify is invested in ensuring that its listeners use Spotify as much as possible - whether that be through music, podcasts, or other forms of content and engagement. This is principally because Spotify gets paid through two main sources: subscriptions and advertising dollars - and even this, specific to the monetary value per user, can fluctuate depending on the geographic location of the listener.
As we’ve seen with Netflix: which, as reported in its first-quarter earning report (April 2022), lost 200,000 subscribers and is now looking to include in-stream advertising in its viewership experience. The importance of keeping customers engaged with new content, as well as maximizing revenues through advertising are two of the most hot button issues for media companies, today.
This is one of the reasons why Spotify recently acquired ‘Heardle’ - the ‘Wordle’-inspired music guessing game. You can read more about ‘Heardle’ and the acquisition at the previous link as well as this one; but the main aim of this acquisition is to increase the amount of time Spotify’s customers spend on the app. ‘Heardle’ is an app where you listen to the first few seconds of a song and make an attempt at guessing the name of the song.
The thinking behind this acquisition is that by engaging listeners, Spotify not only increases the amount of time that customers spend on the Spotify app; but also, potentially, drives up the streams of the “guessed” songs.
Spotify is basically attempting to create an internal "viral machine” and capitalize on the trend we’ve seen where songs regain popularity from other sources other than the song itself - similar to the effect ‘Stranger Things’ had on Kate Bush and her song ‘Running Up That Hill’ (originally released in 1985). After a fortuitous sync placement in ‘Stranger Things’, Kate’s YouTube views doubled (from 48 million views to 100 million views); and generated over $2.3 million in streaming revenues - becoming “the most streamed song both in the U.S. and globally”.
Another example is this video, uploaded by Nathan Apodaca on Tik Tok, using Fleetwood Mac’s ‘Dreams’.
After the video went viral on Tik Tok “users in the UK played Dreams more than a million times in the 10 days after Nathan uploaded the original video on 25 September; almost double the song's streaming numbers (538,000) in the preceding 10 days”.
One last example is Tom Odell, and his song ‘Another Love’ - the song went viral on Tik Tok, ten years after it was initially released, and generated “more than 900 million streams on Spotify alone”.
The point is that there’s a very real, although often overblown, phenomenon where moments in media (and social media) drive the consumption of music.
The acquisition of ‘Heardle’, in addition to the more than $1 billion the company has spent on podcast production and technology companies, show Spotify is looking for ways to increase its customers daily usage time. It’s a volume game - and is one of the reasons why playlists are so important on Spotify (and other DSP’s). It’s bigger than any one individual artist, and is more about providing customers with a highly curated experience.
Spotify is definitely looking for ways to leverage the attention that it has from listeners - both inside and outside of the music industry.
This is, in large part, due to the amount of money Spotify has to pay the major record labels (and other rights holders - i.e, artists, songwriters, and producers) in exchange for the license to music catalogs. Spotify currently retains around 30% of the income generated by music (though this may change slightly due to the recent songwriter rate hike made by the Copyright Royalty Board).
How much of an opportunity there is outside of music is yet to be determined, however, and is another reason why Spotify is doubling down on music by making this acquisition.
“Despite all of Spotify’s spending on podcasting, it accounted for only 7% of total listening hours in the first quarter of 2022 and 2% of revenue last year, the company announced in June.”
Here’s an interview with Michael Lynton, former Chief Executive of Sony Entertainment, speaking to some of the challenges facing Spotify, music streaming in general, and podcast media. It’s a worthwhile listen.
The relevant segment starts at 22:14 and runs through 29:24.
In closing, I think it’s important for artists and their teams to understand the business of Spotify (and music streaming in general); and strategize accordingly.
I’m not saying not to (i) drive fans to streaming services, (i) take advantage of playlist opportunities, and (iii) accept the new streaming world in which the music business operates. I think that’s common sense, but I am saying to recognize that a streaming strategy should simply be complementary - and one part of your overall media and business strategy.
Elijah Adefope is a media, entertainment, and technology consultant and attorney. He is Lead Counsel at Substack, a media technology platform for creatives, and has written two books on the music and sports industries. He lives in Atlanta, Georgia and can be reached on LinkedIn or at elijah@thrivesportsent.com