Don’t like Joe Rogan on Spotify? So pay more for music.

Hello and welcome to Protocol Entertainment, your business guide to the gaming and media industries. Today, we explore why the price of music subscriptions has led Spotify to write big checks for the likes of Joe Rogan, and how much Meta spends on AR and VR. Also: Ouchis VR.

Why you can blame the music award for Joe Rogan

There’s been a lot of finger-pointing since Neil Young pulled his music from Spotify last week in protest at the company’s exclusive podcast distribution deal with Joe Rogan. Depending on who you ask, the whole controversy is about a company putting profits before public health, the difficulty of moderating content at scale, or the demise of RSS.

Here’s another explanation: Spotify is in bed with Joe Rogan because streaming music is too cheap.

Music services have long struggled to pay those huge royalty checks that their contracts with music rights holders demand. Some have even argued that the deck is fundamentally stacked against the streaming media industry and that music subscription services can never be profitable.

  • Spotify has indeed lost billions of dollars over the years, a streak that has continued into 2021: for the full year, the company posted net losses of $38.8 million out of $11 billion in revenue, according to its latest earnings report released yesterday.

And there’s a big reason why Spotify isn’t making a profit: The price of music subscriptions has not changed for 20 years.

  • You read that right: When streaming music pioneer Rhapsody (now known as Napster) began offering unlimited streaming access to major label catalogs in 2002, it priced its subscription package at 10 $ per month. Fast forward to 2022, and Spotify is still charging $10 per month.
  • The price of Netflix’s intermediate subscription plan rose from $8 to $15.50 over the same period, and everything else also became more expensive: adjusted for inflation, $10 in 2002 equals approximately $15.50 today.

So why can’t Spotify just raise prices like Netflix? Turns out, comparing these two companies isn’t even in apples versus oranges territory, but more like adding meat to your fruit salad.

  • Netflix produces shows and movies that you won’t find anywhere else. Spotify streams the same music as Apple Music, Amazon Music and YouTube Music.
  • “There’s a prisoner’s dilemma dynamic at play due to the lack of differentiation between streaming services,” MIDiA Research analyst Mark Mulligan told me this week. “If one raises its prices, it’s just a more expensive version of its competitors.”
  • In other words, if Spotify were to charge $15 per month, people would just switch to Apple’s $10 plan.
  • And unlike Spotify, these other guys can afford to lose money on music. They’ll just make up for it by charging you more for other things (iPhones, Prime memberships, etc.).

This forced Spotify to get creative. The company has tried many things over the years to make more money.

  • This included a short-lived foray into video and attempts to strike direct distribution deals with artists to eliminate labels from the equation.
  • After major labels and distributors pushed back on these efforts, Spotify settled on its current strategy: to become the biggest player in podcasting.
  • By shifting podcast listening, Spotify aims to reduce the share of revenue it has to pay to music rights holders.
  • Exclusive deals like the one with Joe Rogan also come with the promise of a business model closer to Netflix. Instead of paying for each stream, the company just writes a big check once and then watches those subscriber dollars roll in.

But what else can Spotify do? Spotify is unlikely to drop that $10 price tag without industry-wide backing. However, Mulligan thinks he can still tweak some things to make music streaming more profitable for everyone involved, labels and artists included.

  • This includes cracking down on all such discounts. “The majority of consumers don’t pay $9.99,” Mulligan told me.
  • Instead, they can pay $5 a month for Spotify’s student plan, which also includes access to Hulu and Showtime. Or maybe they’re getting the bill picked up by their parents as part of a family plan (Hi, fam!).
  • Result: Spotify’s average revenue per premium subscriber is only $4.97. In 2018, it was still at $5.34. “Subscriber ARPU has been going down every year for the past five, six, seven years,” Mulligan said.
  • Spotify recently started increasing some of these bundled and discounted prices, which resulted in a slight increase in ARPU. Mulligan thinks the company could do more. “The most important task is not to raise $9.99, but to make sure more people pay $9.99,” he said.

Even so, increasing the price of packages is unlikely to solve all of Spotify’s financial problems, which is why we’re likely to see more Joe Rogan-sized bets in the company’s future, even if it sometimes annoys people like Neil Young.

— Janko Roettgers (Twitter)

A big number: 10 billion dollars

That’s what the company formerly known as Facebook lost last year on AR and VR, according to its fourth-quarter earnings report. That’s not necessarily a huge surprise: Zuckerberg first warned investors in October that the company’s metaverse spending in 2021 would top $10 billion.

Still, seeing that number in the earnings release underscored just how important an AR and VR bet is for Meta, and company executives made it clear during yesterday’s earnings call that the company is ready to spend a lot more money.

Zuckerberg teased a version of his Horizon VR world that will work on mobile devices, and said the company still plans to launch a high-end VR headset later this year — all things that won’t come cheap, that is. why CFO David Wehner has warned of the potential for more sticker shock moments in the coming quarters.

“We expect Reality Labs operating losses to increase significantly in 2022,” Wehner said.

— Janko Roettgers (Twitter)

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In other news

Comcast will broadcast 2,800 hours of Winter Olympics coverage on Peacock. The company will also launch a dedicated Olympics hub on its set-top boxes and smart TVs.

Sony is still struggling to make enough PS5s. Sony CFO Hiroki Totoki has warned that the current chip shortage will affect sales of the sought-after game console through 2022.

Smart TV sales are beginning to affect the use of dongles, and Korean TV makers are seeing demand rise due to supply chain constraints in China, according to the latest streaming device data.

Sonos bought a Bluetooth audio startup, and appears to be gearing up to launch its own headphones soon.

Hollywood is planning more video game adaptations. A new report this week said Dwayne Johnson’s unannounced video game movie, which the actor teased last month, would be based on Call of Duty. Indie game It Takes Two is also getting the Hollywood treatment, while Sony’s Uncharted comes out on February 18.

Electronic Arts CEO Andrew Wilson has reversed course on NFTs, which he called three months ago “an important part of ‘the future of our industry’. In an earnings call on Tuesday, Wilson said the company isn’t focused on them at this time.

Epic is investing in more film talent. The Fortnite maker led a $20 million investment round in Spire Animation Studios. As part of the deal, Spire will integrate the Unreal Engine into its animation pipeline.

An independent studio that supports unionization. The founders of new developer Gardens, formed by former members of thatgamecompany, said they want to foster a positive and healthy work environment, telling Inverse, “If the day comes when our employees want to unionize, we’ll support them.”

Microsoft’s AR hardware plans are in disarray, Business Insider is reporting, with word that plans for a HoloLens 3 device may have been cancelled.

VR to ER

The Wall Street Journal ran a story this week about people getting hurt while wearing VR headsets, and I can relate: I’ve never had to go to the doctor in a VR accident, but I’ve certainly had my fair share of close encounters with dressers, ceiling fans, and TV screens. Check your tutors!

However, one of the anecdotes cited in the story left me with a lot of questions. A British virtual reality fan allegedly knocked his girlfriend to the ground while playing Beat Saber. Supposedly, the incident didn’t result in any serious injuries, and the accidental perpetrator assured the Journal that it had “nothing to do with their subsequent breakup.”

This sounds like one of those cases where it would have been helpful to talk to all parties involved. Maybe there’s even room for a follow-up to Metaverse-related breaks. VR to Tinder, anyone?

Thoughts, questions, advice? Send them to [email protected] Have a good day, see you tomorrow.