Netflix: A Cautionary Tale for Spotify

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Spotify just lost about 200 record labels, which is bad for a service that's only as valuable as the music it provides. After a study showed that streaming music services hurt record sales, more than 200 labels distributed by STHHolidings pulled out of Spotify.  Just like any service that compiles rather than produces its own content, Spotify's a slave to the companies that own the content, ie. record labels. Record labels decided the deal wasn't worth it, so they pulled out -- a scary sign for Spotify. As we've seen with Netflix, if the service no longer has any stuff people want to watch, subscribers no longer way to pay for it. While these 200+ labels, which specialized in techno, grime, dubstep, and bass music, might not matter much to the average music listener, if others follow, like Netflix, the streaming service might look a lot less attractive to all those paying customers.

Spotify should look to Netflix as a cautionary tale. The streaming TV show and movie service, in part, gained popularity by offering titles people actually wanted to watch via its Starz deal, which offered Disney and Sony movies. Presumably, Spotify's winning off of the same model. It offers 15 million songs -- nobody would pay for bad music and a small selection. When Starz peaced out, Netflix lost some cachet. A streaming service without good movies isn't that attractive; Netflix hasn't had the best few months.

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Spotify could be headed down the same path. People paying for the service want good music. Even these baby labels pulling out could incite a subscriber exodus, argues Epicenter's Duncan Geere. "Meanwhile, even the smallest labels yanking their content is bad news for consumers, because it turns a service that has everything into a service that has “most stuff” — that’s a life-and-death difference to a hardcore music fan," he writes. The music industry, just like Hollywood, doesn't want to dilute its product's value. Hence the pull-out. "As a distributor we have to do what is best for our labels. The majority of which do not want their music on such services because of the poor revenues and the detrimental affect on sales," STHoldings explained in a press release. Big names like Adele and Coldplay saw that coming and have avoided putting their newest albums on the service from the get-go, points out Geere. If other bigger labels follow, subscribers will notice. And, Spotify could become the Netflix of streaming music -- and we don't mean in a good way. 

This article is from the archive of our partner The Wire.