Netflix and originals
In the early days, Netflix relied on licensing deals with movie studios to stream content. However, these deals were expensive and limiting, with content owners carefully slicing and dicing rights by region, release date, and other factors. Netflix knew that to secure its future, it needed to produce its own original content.
While producing shows is more expensive than paying for licensing, creating originals comes with an important advantage: exclusivity. With exclusive rights to a show, Netflix gains more power to attract and retain subscribers, as long as it continues to produce quality content. This approach also frees Netflix from the constraints of movie studios, avoiding high costs, region restrictions, and limited streaming durations.
The initial high production costs of originals are offset by Netflix’s massive subscriber base, with more than 223 million subscribers as of Q3 2022. For example, producing a show that costs $100 million with 200 million subscribers would result in a cost of less than half a dollar per subscriber. In contrast, a competitor with half the number of subscribers would have to pay double the cost per subscriber to produce a show at the same price. As the most popular streaming service, Netflix is in an excellent position to maintain its dominance by continuing to produce high-quality originals.
Spotify original music?
Spotify is the world’s most popular streaming service, but it has yet to follow in Netflix’s footsteps by producing original music. The key reason, I think, is the need to have every song on a single platform.
Songs vs movies
On average, an American subscribes to 3 to 4 video streaming services (source #1, source #2). People navigating between platforms like they are switching TV channels. However, music consumption seems to be incompatible with such behavior. People tend to open a playlist and let it play in the background while doing other things, or simply sit back and relax. In these cases, switching is inconvenient.
The relationship between an aggregator and its suppliers
Let’s take a look at Google & publishers vs Spotify & record labels. The relationship between a listener and a song is different from the relationship between a reader and a news article. You can love a song, but you don’t love a news article. You can dance to a song, but I’m not sure you can do so to a news article. Each song is unique, whereas the same fact can be reported by different publishers.
A piece of news is substitutable, and this is why publishers have to let their content be indexed by Google: if a publisher doesn’t do so, traffic will be directed to its competitors. On the other hand, if Universal Music decided to stop letting Spotify stream Bob Dylan’s songs, fans wouldn’t choose Carrie Underwood as a substitute just because she is also a country singer (both are great artists, by the way). They may subscribe to Apple Music instead if Bob Dylan is on the platform, or buy Bob’s CDs, or download his songs illegally.
If Spotify were to produce its own music while continuing to partner with record labels, it could face pushback from these partners. Record labels might see this move as a way for Spotify to reduce its reliance on them, and they wouldn’t want to give up their negotiating power. Additionally, they may not want to give one platform too much power, as in the case of Google and Facebook versus newspapers. Worst of all, they could see Spotify as a competitor. The potential consequences are very serious. Imagine not being able to listen to K-Pop on Spotify! (This already happened in the past: “On March 1, 2021, hundreds of K-Pop songs disappeared from Spotify without warning. As Spotify and the Korean music distributor Kakao M couldn’t reach an agreement on renewing the streaming license.” — Source: Soompi)
Artists’ incentive
Furthermore, record labels and artists may not find it compelling to have their music exclusively on one platform. It’s best for them to reach as many listeners as possible. Especially for artists, as the majority of their income is not from selling records, but from touring and live performances — the distribution of their songs on streaming platforms is how artists promote themselves.
On a side note, Spotify has exclusive podcasts. At least they won’t have to deal with the same challenges as in the case of music.