（预览）Spotify 展翅高飞、资本开支爆炸与差异化、病毒式 AI 推文问答、Anthropic、Giannis

Hello, and welcome to a free preview of Sharp Tech. Hello, and welcome back to another episode of Sharp Tech. I'm Andrew Sharp, and on the other line, Ben Thompson. Ben, how you doing?

I'm feeling self-satisfied.

How so?

We just sat down. You were talking about how you have this new external monitor you use for podcasting right in front of your camera, and you're just like, "You were so right," and I'm like, "Yes, I'm, I'm..." You know?

This is what kills me. Honestly, I fought you for 2½ years about getting an external monitor, a big Studio Display Mac that's sitting here on my desk. As soon as I took over this podcast, you were like, "Let me get you a monitor." I said, "No, no, no, I don't need it." What I found over the course of hosting this podcast is that the tech guys are usually right in the end, and it really pisses me off time and time again, but here we are. You're coming through in crystal-clear resolution, and I love where we're at.

You're looking right at me because the monitor's behind the camera where it should be. It's amazing.

I gotta say, though, I feel a little bit inferior as a host because I don't have a cheeky pint to offer you as we record for the next 90 minutes. Not even a pint. You're sitting there in a basement, with no on-premises pub.

Yeah, and I'm drinking a Diet Coke, so it's probably better for podcasting.

Exactly. Should we just cancel the pod here, call it a day? In any event, we won't do that. We're gonna begin with a company that we discuss only sporadically here on Sharp Tech. They did not make my definitive takeability rankings late last year, but I will read from Bloomberg:

"Shares of Spotify jumped the most in nearly 8 years after the Swedish music streaming giant added a record number of users last quarter, far surpassing analyst expectations. The world's biggest streaming service added 38 million new listeners from October through December to reach 751 million, according to a statement Tuesday. Paid premium subscriptions increased 10% to 290 million. Spotify said it expects to reach 759 million monthly active users in the current quarter. The company credited its annual Wrapped campaign, which provides users with a personalized, data-driven summary of their listening habits over the past year in a format designed to be shared and compared across social media. Spotify also cited the launch of an enhanced free tier around the world as contributing to the growth. Its shares rose as much as 19%, the biggest intraday gain since April 2018."

I'm curious for general thoughts on Spotify, but first, a more specific question: Has Spotify just won in streaming music? Are the Apple wars over at this point? Can we call it?

Oh, I think it's been clear for years.

Okay.

I mean, there are Apple Music subscribers. There's YouTube Music. There are other ones, but the big thing is no one really switches. It's kind of like iOS versus Android. It feels like people don't necessarily switch a lot. If they have one, they're on it, but no one's going from Spotify to Apple Music, whereas Apple Music users will slowly trickle to Spotify.

Why is that, do you think?

We have a mutual friend of ours who was at Apple for a long time and would sort of defend Apple Music. Now he's not at Apple, and he's like, "Actually, yes. Turns out Spotify is a lot better."

Spotify is incredible.

Yeah, he was sort of raving about it.

But what's the stickiness for people who use Spotify versus Apple Music?

Well, this is actually pretty interesting. I really enjoyed this earnings call. Earnings calls—as a connoisseur of earnings calls who reads a lot of them—

I was gonna say—

Daniel Ek stepped down as CEO at the end of last year, December 31st. So this was sort of his last earnings call that he appeared on, and he didn't answer any questions. He only came on to give his final thing, like, "Here's our foundation going forward," which is basically an articulation of everything we did right in the past and where we're gonna go.

I was gonna say, it's something of a victory lap for Daniel Ek when you look back at the last 15 years or so.

For sure, and I think a deserved one. Spotify, whatever you wanna say about it, you have to remember that, back when it started, it was dragging the entire industry kicking and screaming into this new world—a new world that fundamentally redefined what was being sold.

You talk about this in the context of media generally. Newspapers, it turns out, were actually a light manufacturing business with a delivery fleet, right?

Right.

They were a light manufacturing and trucking business, and no journalist wants to hear that. "No, people, we survive because of my brilliant writing." No, it turns out that really wasn't the case.

Once all those aspects of what your business actually was became immaterial because it was completely wiped out by the internet, that's how you actually got news. It turns out they were all in big trouble. They're all competing with each other, and we talked about exactly that a week ago.

Yeah.

In music, music was also a plastic manufacturing business. You made CDs, right? And that's what you actually bought. There were lots of interesting things about that. You had the phenomenon of bands having 1 great song, and then you'd—

And having to buy the album. Yeah.

All of which sucked.

Mm-hmm.

Then you would obviously have to make your own mix CD, and you'd get a CD burner. Or even before that, you would make mixtapes, right?

Exactly.

For the kids out there, it was actually very exciting to get a pack of 20 CD-Rs and just make mixes back in 2001.

But even before that, this might've been before your day. What we would do is, you would have a boombox that had a record function, and you would always have it with you with a tape ready to go.

Mm-hmm.

Then you would listen to the radio—

And record the radio.

—and when a song you liked came on, you would click, run over, and hit the record button so you could get the song. Then you would do that until your tape was full.

Yeah.

Then you could listen to your favorite songs, missing the beginning and end of them, or with DJs talking over them, or whatever it might be, just abruptly cutting to one or the other.

That was my entry into music: actual cassette tapes that were recorded from the radio. Then it got a little bit more exciting and easier once CD-Rs came around.

Right.

But all of that is now obsolete.

That's right. So what did Spotify sell?

Mm-hmm.

Spotify sold convenience. In a world where, with Napster, you could suddenly go get any song you wanted, Napster got sued out of existence, and there was Gnutella. Even before that, I've talked about how I would go on FTP servers. You could connect to random FTP servers. You're connecting to pirates over the internet.

The original pirate. Yeah.

Yeah. If you just paid a small monthly fee, you could get access to all the music in the world. You could theoretically go and get your MP3s on the dark web or whatever it might be, and you could make your CD-Rs or sync it with your iPod and whatever. There were people who did that. There are weirdos like you who still buy digital albums.

Purchase music.

Yes.

I still do, but it is interesting because the industry had internalized the disruption from Napster and then adjusted. By the time you got to 2007 or 2008, they had figured out how to crack down on piracy, and the model was buying songs on iTunes or buying albums on iTunes. That's how people made their money. Then Spotify ushered in a completely different pivot a couple of years later.

Right. To be clear, the digital selling of tracks never really made up for CDs.

Hmm.

Selling a 99-cent track when there's only 1 good track that you want is not as good a business—

Isn't as good as a $16 album.

—as selling a $15 or $16 CD, most of which is filler. So, before we progress—

Okay. Oh, boy.

Are you asking this question to set up this discussion, or because you still don't have a Spotify subscription?

Wow, putting me on the spot here. This is embarrassing. I certainly don't pay Spotify. I think I have some dormant emails that I've used to sign up for Spotify because I share our podcast via Spotify, because their social graphics are superior to what Apple offers.

Ugh. Amazing.

The disgust.

No, it's fine. I don't feel as strongly about this one. I'm just amazed.

Well, and you know what's even more embarrassing? The reason I don't have a Spotify account is because I don't need to listen to new music. That's how washed I am. All the music I have, I own or pirated back in the day, and I'm set as far as that's concerned. I'll occasionally buy one song on Apple, and beyond that—

That's fine.

Exactly.

Look, you got digital storage for my cloud. I'm satisfied. I'm not going to push you anymore.

And it goes back to the adage: the music that you love for life is the music that you were listening to when you first started having sex. So from 2005 to 2015, that's my payday.

Oh, look at you, bro. Geez.

Other than that, I don't need anything released since then. But continue with Spotify. Where did they take the industry?

Spotify sells convenience, and it turns out that it's funny because this came up, speaking of the Cheeky Pine podcast, where we were talking about the idea of bundling. Bundles, in theory, are amazing for everyone.

Mm-hmm.

Everyone makes more money. The consumer gets more choice and more access. It's a great deal. You saw this with TV, and the weird thing is that everyone has to be forced into a bundle, and everyone tries to bail on it as soon as possible.

Yeah.

TV is the classic example. You had this forced on you by geographic limitations. Cable is so interesting because it started in little towns and then came into the cities. The cities had easy access to the TV signal. If you're over the Allegheny Mountains in Central Pennsylvania—

Mm-hmm.

—you can't get the Philadelphia station, so you had to put up a huge tower to get the signal and then run cables—literal cables—to everyone's house so they could watch the big-city TV. Then Ted Turner is like, “Oh, I could just use satellite dishes to beam directly to the base station of all these cables.”

Yep.

And boom, you sort of have cable, and everyone makes more money. Why does everyone make more money? Because everyone is paying for everything, and that is better. The big winners were you and me.

Mm-hmm.

Because we are sports junkies, and so we get access to all these sports. Over time, everyone realizes this is actually the most valuable, the most limited sort of content because it only happens once, and you know exactly who you want to watch. It's not replaceable. It's not rivalrous.

Yeah.

We paid $100 a month or whatever it might be and got access to all these sports, and it was amazing.

And it shouldn't cost $250 a month or something like that, but it was subsidized.

Well, you will see what happens as we get down this—

Yeah. Now we're here.

We're approaching those territories.

Uh-huh.

Because in a bundle, everyone pays for everything, and you get stuff that you would have never paid for yourself, but it's part of the bundle, so it's great. The key to getting a bundle working, though, is that it's really hard to get the most valuable stuff in there because the most valuable stuff can charge a lot to its biggest fans—

Mm-hmm.

—and then can make the most money. This is the challenge with, say, a Substack trying to make a bundle. The people on Substack who are making millions of dollars—how is Substack going to get them in the tent? It's like, “Oh, you have to make a little bit of money from everyone instead of a lot of money from a bunch of subscribers that you're doing presently,” and it's just really hard to funnel people back into this constrained space—

Mm-hmm.

—given these dynamics. What's interesting about music and what made music unique is the label oligopoly.

Hmm.

Maybe this is something for you to consider: industry concentration can actually be pro-consumer, which is arguably what happened in music. Because there was an oligopoly, if you could just get the 4 labels—or the 3 labels and a moral one, like the independent label or whatever it is—then you could have most, if not all, the music, right?

Bargaining power.

Well, the key thing is you had someone to bargain with.

Mm-hmm.

If you're bargaining with a disparate mass, you can exert control in certain circumstances, like Google or Facebook or aggregators generally do. But to get the supply organized in a way that lets you offer a compelling bundle, it's easier to negotiate if you have a limited set of people to negotiate with.

Yeah. Mm-hmm.

And so—

Whereas if it's 1,000 different people, then you have to worry about the edge cases and the deserters, and particularly the high-end earners—

Right. See, Spotify—

—who are less incentivized—

If everyone is totally separate and Spotify has to go to every individual artist, your tiny little artist who doesn't have any income is like, “Yeah, I'll take whatever you're going to give me,” right?

Sure.

You go to Taylor Swift, and it's like, how much are you going to have to pay her to get her in the bundle?

Mm-hmm.

Taylor Swift will complain about her label, but actually, in this case, because her music was owned by a label, it could be part of this negotiation as part of all these sorts of things. What happened is that you have hundreds of millions of people paying—I don't know what the price is now. It was $10 a month. Now it's up to $12, $13, $14 a month.

Yeah.

The key thing is that there are a lot of people who are now paying less for music than they did before.

Mm-hmm.

The music omnivores who would buy a gazillion CDs and were spending a few thousand dollars a year on music—they are the sports consumers of music. They are getting all the music in the world and only paying, say, $150 a year. Amazing deal. But that's made up for by the fact that people like me, or the theoretical Andrew—

Mm-hmm.

—who don't really listen to that much music or listen to the same stuff again and again, it's just whatever.

They want access regardless.

It's $15 a month.

Yeah.

And if the new hot album comes out, I could easily listen to it because I have a Spotify subscription. I'm overpaying, honestly, for Spotify—

Mm-hmm.

—and you're not wrong to say, “I'm not going to pay for it because I just listen to all the albums I listened to when I started—”

The music I know and like.

“—except.”

Yeah.

In this case, I can't even be too mad at you because it actually does make logical sense.

Mm-hmm.

But it's also convenient.

Yeah.

I just pay it every month. I have a family plan. My daughter uses it a ton. She listens to a ton of new music. She's in college right now, so it works. It's fine. I have no problem paying it every month. You give a bargain to your whales by getting everyone else to pay the same amount they are.

Yeah.

This is the one example of a bundle that's sort of been reformed since then, and Spotify's power made it happen. Obviously, there are other terms on the way, but they were the forcing function to get the industry into a much better space, and the industry makes far more money than it made 20 years ago. Is it at the peak of the CD era, especially when you adjust for inflation? No. But all things considered, the music industry is doing pretty well.

Well, and considering the most dire predictions and outlooks for what the music industry could have turned into—

Right. It seemed like the worst case.

Yeah.

And it turned out they were the best case. But that's—

Indeed.

—completely thanks to Spotify.

Well, thanks to Spotify and thanks to the oligopoly of record labels kind of working in concert to navigate this landscape together. On the tech side, part of Daniel Ek's victory lap on the call was him saying, “We built our ubiquity play, that's called Spotify Connect, starting in 2011, right as we launched in the United States. At the time, every major tech platform was building their own walled garden for audio. The conventional wisdom was, pick an ecosystem and live inside it. We bet the other way. We decided Spotify should work everywhere—in your car, your speaker, your TV, your gaming console—regardless of whose ecosystem you're in: Apple's, Google's, Amazon's, Samsung's, Sonos's, all of them seamlessly.” Why was that the right bet in 2011?

Well, so there's 2 parts of this. Before that, he talked about all the personalization that they do.

Mm-hmm.

The most famous is Discover Weekly, which introduces new songs to you, but now there are all these mixes and the algorithm that shows you stuff that Spotify thinks you’re interested in.

Yeah.

What’s interesting about this is the overall dynamic about network companies. By network companies, the most famous obviously is Meta, or Facebook, and we’ve talked about this idea. What’s interesting about Facebook is that it’s this network everyone is on, and yet at the same time, everyone’s experience is totally unique.

Mm-hmm.

It’s this paradox of these networks, and it goes back to the feed and this idea that your feed is going to be tuned and unique to you. Obviously, it started just with your friends and family. It started with your college, right? You had your college email address.

Yeah.

But then it expanded to friends and family, and people you know, and now it’s gone far beyond that—it’s just all user-generated content generally. When you watch Instagram Reels, a blatant rip-off of TikTok, which got there first, this idea is that we actually have infinite content. If we can be really good at sorting through that content, we can deliver you consistently compelling stuff.

That you’ll like, and it’s from people you’re not following, people you’ve never met before, people you—

That’s right.

—have no idea about.

No, if you’re watching Reels, you basically never see a Reel from someone you know. It’s pure entertainment. That’s what it is, for better or worse, and as we’ve been discussing for the last 6 to 9 months, it turns out you can really twist the dials on that and just get people locked in more and add—

People are in regardless.

—more and more ads in there and all these sorts of things.

So in Spotify’s case, is it a situation where the scale that they’ve achieved gives them the ability to personalize better than any of their competitors, and the advantages just compound?

That’s right. What’s interesting about these networks is, if you’re on the outside—

Mm-hmm.

—if you’re a user, everyone—it’s like we talk about being subscribed to Spotify. We view Spotify collectively as a singular entity. I have Spotify. You have Spotify. My friend has Spotify. Everyone has Spotify, whatever it might be.

Mm-hmm.

Just like I’m on Facebook. You’re on Facebook. Everyone’s on Facebook. What’s interesting, if you take the perspective from the opposite way, from the inside-out perspective, it’s actually millions, hundreds of millions, or, in the case of Facebook, billions of individualized products.

Mm-hmm.

That is what technology is uniquely capable of. Even though it’s a single network, the experience of that network at scale is totally unique and separate for everyone.

Now, there are broader sociological questions about this. No one is actually having—

We’ve siloed off everyone. Yeah.

—a shared experience. Everyone’s having a completely individualized experience, but what’s compelling about this is that you can have the initial Spotify. Everyone just has access to all music. That’s what they sold. That was the V1: you’re—

Mm-hmm.

—selling convenience. You get all music. But that product is easily replaced with, say, Apple Music. If all you’re doing is searching for a song that you already listen to, for you and me, the experience of Spotify and Apple Music is basically the same. It comes down to different UI choices, right?

Right.

All I’m doing is searching for the ’90s alternative playlist. That’s really all that I care about.

Mm-hmm.

You’re searching for 2000s crappy rap or whatever it might be. Yes.

Yeah.

And their ability to personalize—Spotify’s ability to personalize—is what distinguishes Spotify.

That’s what keeps people on there. Exactly.

It’s been a 15-minute answer to my question at the top about what the stickiness is for Spotify.

They’re just way better at this, and you’re in there, and they know you. People on Spotify have been listening to Spotify for years. Spotify has you pretty dialed in at this point.

Yeah.

And so in 2011, did Daniel Ek see that that was going to be the advantage that Spotify would need to have in order to win? And is that why he wanted to just be everywhere and have as many users as possible, as opposed to a walled garden?

That’s a good question. I would love to ask him.

Mm-hmm.

I don’t know Daniel super well. I think I’ve only met him once. Maybe now that he has some free time, I can get him to come on.

That’s right.

Although I do know Gustav, one of the new co-CEOs, very well, so we’ll see what we can do. Maybe I can ask him. But I just think it’s an interesting object lesson about how networks evolve generally.

Yeah.

I think when Spotify started, it was just such a heavy lift to get the industry over the line of, “Look, this is better for you: make all this stuff available for one price.”

“Stop trying to recreate the CD. That world’s dead and gone. Just make everything available.” But for a network to grow, for it to persist, and for it to keep churn low, you need to evolve. We’ve seen how Facebook has evolved, and Spotify itself has evolved, and it evolves in this really interesting way, which is that you think about a network as being compelling because it’s the same thing for everyone, but the actual implementation of tech-based networks is totally different for everyone.

Mm.

That’s what is actually sticky. And in this world, this was—it was a good lead-in. Even though he framed it as looking forward, it was more of a victory lap.

Yeah.

In his defense, it was a good lead-in to Gustav talking later in the call about why they see AI as a huge positive for them. AI is even more individualized. It’s even more custom to you, and Spotify has been so down on the success of AI music companies. It’s like, no, this is all maybe an analog for software. I’m not going to go to an AI and ask it to make music for me—like, do that for my playlist.

So in a situation where AI music proliferates, you think, A, humans are still going to want human music, number 1, and B, there’s going to be so much more supply that, again, you’re going to be in a situation where Spotify the aggregator is more dominant in that scenario.

Right. And people are like, “Oh, Spotify needs to make AI creation tools,” right?

Mm-hmm.

I’m like, “Does Spotify sell guitars?”

Do they? Yeah.

Right? Do they? No. The AI creation tools can exist. All that means is more supply for Spotify.

Mm-hmm.

And certainly there’s a worry or concern about being overwhelmed by AI slop, but the reality is there’s so much music in the world none of us are ever going to listen to.

It’s all already slop.

This is similar to the YouTube issue, right?

Yeah.

Spotify and YouTube have a lot of similarities. YouTube is, to Spotify, like it is to Netflix: the biggest problem, for sure.

Mm-hmm.

But their whole skill set—the whole skill set of an aggregator—is managing abundance.

Yeah.

There’s already abundance on the internet, and if you’re in an aggregator position, you’ve been honing the skills to deal with the deluge for years and years and years. It’s not just that you can filter stuff out; you can also find the stuff that’s compelling and would actually be useful and good for your listeners, deepening your moat.

Mm-hmm.

The fact that you are actually in the abundance makes your product better. It doesn’t make your product overwhelming. In the meantime, you also get to, on the front end, give a better experience to listeners. Your algorithms can get better. They have this new interface of using natural language and asking for different stuff, and they can understand that. And by the way, most people aren’t necessarily going to use that.

Yeah.

But enough people use it that they get signal from it—understanding what requests go with what music—so they can generalize to the entire usage of the app.

Mm-hmm.

And it’s just—I enjoyed their articulation of this because this is a little extra tidbit to go with the aggregation theory idea, which is: Why are aggregators so powerful? This idea that, yes, they aggregate all the users in one place, so they control demand. How do you maintain that demand, and how do you get these virtuous cycles of making that stickiness even deeper?

Mm-hmm.

It's actually that, from one perspective, you're this one entity, and from the other perspective, you're actually the most customized, unique—

Label.

—delivering an individual experience—

Sure.

—to every single user that you have.

Yeah. Well, Spotify Wrapped is undeniably brilliant and every single year entertains me.

I always dread it because my Spotify Wrapped is—

Embarrassing?

Yeah, it is fairly embarrassing. It's music I listen to, usually with the kids in the car. There was a lot of KPop Demon Hunters. Taylor Swift had a new album this year, so obviously—

Mm-hmm.

—that was on there. And then there's my Above & Beyond podcast, which is basically the only thing that I listen to when I'm working, so there you go.

Great. We get a lot of Sharp Tech listeners, a lot of GOAT listeners, and a couple of Sharp China listeners.

Yeah, we always get the—

So people checking in—

—emails from the true listeners who, yes, their top 4 or top 5 podcasts are all Stratechery Plus products.

It's really tremendous.

We love you.

Yeah.

We see you. We see those tweets.

I really appreciate it on that basis alone. All right, final Spotify question, and this is just, in the bar, in the pub, in the Stripe pub, shooting-the-shit question: What's the better business between Netflix and Spotify if you're looking at the next 10 or 15 years?

Ooh, that's interesting. The problem that Spotify's always had is tied into why the business was possible in the first place.

Okay.

Because they were only negotiating with 4 entities, they could pull probably the definitive digital bundle together. What is—

Mm-hmm.

—a bundle that was actually created by tech in a world without geographic constraints? It was the music bundle.

Yeah.

And the problem is that the way to get them on board is that those entities had—

Pretty good deals.

—and continue to have a direct share of their gross revenue, right?

Mm-hmm.

And so they have more and more power over the industry. They can make hits or not, and they can get it back through marketing deals. Discover Weekly is not completely organic. You have to get stuff in there, and there are—

Mm.

—independent opportunities.

Well, and they are also—

They're a centralized platform that all these musicians and labels now need, particularly if they're making most of their money on live performances.

That's right. The labels need Spotify—

Like, you need the connection.

—for sure. And their power has certainly increased, but they're still paying out a big chunk of their gross revenue. It—

Mm-hmm.

—means that as their revenue goes up, the revenue that they pay out also goes up. They've done a good job of adding things—adding on podcasts, adding on audiobooks—so it's not just the labels. That's always been, though, a fundamental weakness for them relative to, say, Netflix, where the more original content they do, the more you pay upfront.

Yeah.

Netflix tries not to do residuals because they want to own it. So, KPop Demon Hunters: Sony got a fixed amount of money, and all the benefit from that is just accruing to Netflix. They're not—

Mm-hmm.

—paying out a percentage of their subscriptions to Sony forever. But, on the other hand, the problem with video content in general is you don't go back to it to the same extent you do music.

Exactly, yeah.

And so you always have to be making new stuff. This is part of, I think, one of the Warner Bros. bits: You had this golden era of TV in the '80s, '90s, and 2000s, where you did generate music-like content.

Mm-hmm.

Your Friends or your Seinfeld—people do just watch them again and again.

Totally. It's why I wrote about it on Sharp Tech 6 weeks ago, or whenever the Netflix deal first went through. The rewatchable movies are effectively dead today, but Warner Bros. has a ton of the rewatchable movies.

Yep.

Netflix has done well with rewatchable movies from the '80s and '90s and early 2000s. But there are fewer of them, and in order to keep people subscribed and keep people engaged, Netflix has pretty high fixed costs for new content. That's where I wonder whether Spotify's cost structure will end up looking better in the long run, unless Netflix can engineer a monopsony-type situation where they're the only game in town and they can just drive costs down on new content. But—

Right.

We'll see.

Yeah, that's why the question is interesting because they both have a fixed-cost component that they can't escape.

All right, and that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Stratechery and the Stratechery Plus bundle. Check it out, and if you've got feedback, please email us at email@sharptech.fm.