Quick Take: Spotify And Hulu Partner In The US

Spotify just announced it is bundling in the Hulu No Commercials plan into its $4.99 student offering in the US. Given that the Hulu product retails at $7.99 and Spotify at $9.99, this is unmistakably a good value for money deal – even compared to the standard $4.99 student Spotify tariff. In the Spotify blog post announcing the tie up, it is made clear that this is the start of something bigger: “This is the first step the companies are taking to bundle their services together, with offerings targeted at the broader market to follow.”

Putting aside for a moment how the economics of this bundle might work for Spotify, this partnership gives us a clear pointer as to Spotify’s video strategy going forward. The other part of the puzzle is the news that Spotify is hiring former Maker Studios exec, Courtney Holt, to head up its original video and podcast strategy.

Spotify knows that it needs to have a video play of some kind, despite the failure of its previous attempt. Unfortunately, everyone else is thinking the same – with Snap Inc, Facebook and Apple now committing billions to original content, in an already inflated market for video. Hulu will spend $2.25 billion on original content in 2017, matching Amazon’s original content budget for the year. This is the barrier to entry for video, and its simply too high for Spotify to justify.

Instead, it has focused on working with one of the leading streaming video services in the US, and is building complimentary music-orientated video in house. Thus, through this Spotify bundle a user gets their scripted drama hit from Hulu and their music video hit from Spotify.

Spotify’s Hulu partnership is a smart way to get into the video market without getting in over its head. While for Hulu, Spotify gives it clear differentiation from Netflix and Amazon. Which is given extra significance by the announcement that T-Mobile Netflix for free for its premium customers. Whether the economics of this deal add up for either party is another question entirely.

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Spotify Just Parked Its Tanks On YouTube’s Lawn

Today’s Spotify announcement was always going to be about Daniel Ek attempting to regain control of the streaming narrative in advance of Apple’s grand entry in a couple of weeks.  But if you were expecting this to be the launch of a bunch of new music features then you were in for a little bit of a shock.  Though there were some new music features outlined (such as swipe to listen, behaviour-learning programming and fitness features) the core of this event was positioning Spotify’s transition from a pure play music service into an entertainment destination with video taking centre stage.  YouTube has been competing (on uneven terms) with Spotify for years as a music service.  Now Spotify is fighting back by going after YouTube’s heartland.

Moving Beyond The Soundtrack

Spotify’s hook line for the event was ‘Soundtracking Your Day’ but in actual fact Spotify want to do much more than that (after all that’s what they already do), now they want to also be a visual part of your day too.  Spotify announced a host of new video partners including native online video producers, next gen video creators like Vice News and traditional brands like Comedy Central.  Spotify is creating a catalogue of video shorts that are designed to fit into your day.  This is unashamedly YouTube, Vessel and Buzz Feed territory.

Lessening The Music Dependence

While music consumption is booming (25 billion hours of music has been streamed on Spotify so far) Ek and co are spreading their bets.  The last 6 months have been tough for Spotify with the major labels casting doubt on its freemium model due to thinly veiled pressure from Apple.  Spotify will quite rightly feel aggrieved with this shift in attitude considering the fact it now accounts for half of global streaming revenue and is doing a better job of driving subscription uptake than anyone has ever come close to doing.  Running a music service can be a high effort, low reward and frustrating experience at times.  So Spotify can be forgiven for wanting to weaken its utter dependence on the whims of a few big labels.

Reversing Into YouTube Territory

Reversing into YouTube and Buzz Feed’s front lawns though will be easier said than done though.  The nature of the mobile consumption landscape is a diverse mix of content capsules, whether they be apps, mobile bookmarks or notification feeds.  Users have learned to consume mobile content in bite-sized chunks.  Facebook has done what it can to re-aggregate content via timeline but has found that asset more useful for sorting users personal content and shared content snippets.  Messaging platforms are now looking like the place where content audiences are best aggregated.  In fact the history of content audience aggregation can be summarised as:

1 – websites

2 – portals (e.g. Yahoo, AOL)

3 – social networks

4 – messaging platforms

Which is why Facebook is disrupting itself with WhatsApp and Facebook Messenger, it knows where things are heading.  This is the environment in which Spotify will be competing, with Snapchat and Line as much as it is with YouTube and Vice.  In Spotify’s favour is the fact that many of the digital first content destinations, Buzz Feed especially, are entirely willing to envisage a future in which their content could exist entirely on third party platforms.

Return Of The Portal?

In a lot of ways Spotify’s video mini-pivot feels like a back-to-the-future spin on the 20th century portal model but there is clearly an opportunity to re-aggregate our fragmented digital entertainment lives.  Whether Spotify can do that or not is another question and even if it can, it will be a long-term play rather than some short term hit.  Ek might have said he wants to ‘soundtrack our day’ but his product strategy actions show us that he feels Spotify has outgrown being the soundtrack alone.

Why Amazon’s Streaming Music Service Is A Bigger Deal Than You Might Think

Amazon today entered the streaming music foray with the launch of its own bundled music service. Amazon Prime subscribers get free access to on demand streaming from a catalogue of 1 million tracks, the majority of which are older catalogue titles rather than frontline hits. Amazon’s move has received considerably less interest and hype than Apple’s acquisition of Beats but is in many respects every bit as important.

The future of digital content is going to be defined by the content and device strategies of three companies: Apple, Amazon and Google.  Each has a very different approach resulting in an equally diverse set of products and audiences (see figure).  Amazon and Apple have mirror opposite content strategies: Apple loss leads on content to sell devices whereas Amazon loss leads on devices to sell content.  (Google loss leads on both because its end goal is your data).  All three have a strong focus on music but all three understand clearly that the future of digital content lies in having multiple genre stores that traverse music, games, apps, video, books etc.  All three also recognize the importance of hardware for delivering the crucial context for the content experience.  Similarly, all three have a Content Connector strategy aimed at opening up the mass-market digital content opportunity in the home via the TV.

content strategies

Amazon’s inclusion of music streaming in its Prime offering speaks volumes about the perceived importance of music as a product to the retailer.  Music used to be the crucial first rung on the ladder for Amazon customers.  Buyers would start off with a low consideration purchase item like a CD or DVD and the next thing they knew they were buying microwaves and computers.  Music is still plays an important role in Amazon’s customer life cycle, but it is no longer a product needs paying for with a separate payment.  Music has become the ‘feels like free’ soundtrack to a video subscription with the added benefit of free shipping for online shopping.  Out of those three core value pillars of Amazon Prime, music streaming is probably the smaller. Music has become the National Geographic channel in the cable subscription: a nice part of the overall proposition but not something that carries inherent monetary value on its own.

The harsh reality is that this is probably a sound strategy for engaging the mainstream consumer with music streaming (the extensive selection of curated playlists on top of a modest 1 million track catalogue hints at the mass market positioning).  But whether this is the best strategy for the mainstream is another thing entirely.  Labels fear that free services like Spotify free and Pandora threaten to erode consumers’ perceptions of music as a paid for commodity.  But at least in those environments they are actively adopting a music service in its own right. With Amazon Prime there is a real risk that music is being relegated to the role of muzak in the elevator.

Media Companies: Your Nightmare Piracy Scenario has Arrived, And Its Called Popcorn Time

Two years ago I said that the nightmare piracy scenario for the media industries would be when the pirates gave up trying to fight enforcement and turned their attentions to build great user experiences.  Now with the arrival of Popcorn Time that scenario has come to pass.  However bad piracy might have been for media companies, it is just about to get a whole lot worse.  This is the new era of Experience-First Piracy.

Popcorn Time is an open source interface that sits on the top of pirated video content on torrents.  Instead of downloading the video Popcorn Time streams them to the end user, with titles selected from a neat Netflix-like interface.  In fact one might argue a ‘Netflix clone’ interface (see figure) but with new releases that Netflix does not even have.  On top of all this Popcorn Time is open source, with installer and project files all hosted on developer collaboration site GitHub, and with the app built on a series of APIs.  With multiple development forks already this is an entirely new beast in the piracy arena.  Forget whack-a-mole, this is potentially a drug-resistant, mutating contagion.

popcorn time

In fact Popcorn Time looks exactly like what I envisaged two years ago:

“What if a series of open source APIs were built on top of some of the more popular file sharing protocols so that developers can create highly interactive, massively social, rich media apps which transform the purely utilitarian practice of file sharing into something fun and engaging?  If you thought the paid content market was struggling now imagine how it would fare in the face of that sort of competition.”

Piracy for the Mainstream Consumer 

Until now, piracy was largely the domain of youngish tech savvy males (69% male, 50% under 35). Popcorn Time and the inevitable coming wave of new Experience-First piracy apps will give piracy truly mainstream appeal.  It looks and feels just like the real thing, only for free and with even better content.  What’s not to like?  Worse still – for media companies, not consumers – these sites might – even have a legal defense as they do not actually host any of the files.  The emphasis there is on the ‘might’ as it is an argument that ultimately the Pirate Bay was not able to defend in court.

Three Ways to Hit Back at Experience-First Piracy

So what can media companies do to respond to Experience-First Piracy? Legal action will be the first port of call but ultimately it is a pain killer, not a cure.  The problem itself needs addressing with three key strategic focuses:

  • Windowing: Netflix can only dream of having the content Popcorn Time has, just as early licensed music services could only dream of having the catalogue Napster had in 1999/2000.  The movie studios need to learn that lesson fast, and treat Netflix and Amazon Prime etc. as tier 1 release window partners.  As soon as a release is ready for its first post-theatre window it should go straight onto the paid video services.  BlueRay and DVD are fading yesteryear technology, the media industries’ most engaged and valuable audiences are online and using online services.  It is time to treat them as first class customers, not second class ones.
  • User Experience: Before Experience-First Piracy, the retort to media companies was that all they needed to do in order to stay ahead of piracy was to create more compelling alternatives.  Now the ante has been well and truly upped.  There will never ever be the user experience gulf again.  That time has gone.  This means licensed services have to be continually pushing the user experience envelope, using their capital to hire the very best designers and developers.  Which means that content companies need to saddle them with as little up front rights acquisition debt as possible, freeing them up to spend big on development and design.
  • Pricing: The harsh reality of the internet economy is that when something is widely available for free you have to make your paid-for product even cheaper than it was intended to be.  For Netflix and Spotify et al, that means getting below $5 a month.  Ironically this happens at just the time that Amazon increases its pricing for Prime and Netflix is considering increasing its pricing in order to cover higher rights costs.  Media companies have a crucial decision to make: do they want to get more revenue per user out of a user base that will quickly lose share to Experience-First Piracy, or instead do they want to take a near-term revenue hit in order to shore up their digital service partners’ longer term future?

The fact that piracy has spent so long locked in a user experience quagmire is testament to the media industries’ counter measures: pirate sites were just too busy figuring out how to evade enforcement to focus on user experience.  But now that era has come to a shuddering halt.  It is difficult to over state the dramatic effect Experience-First Piracy will have on the paid content landscape unless media companies do everything within their powers to help the nascent licensed services respond in kind.  The smart companies realized long ago that content is not the product, experience is.  Unfortunately the pirate’s just figured this out too.