Will Spotify Be Next to Develop Video Streaming Service?

It seems a number of major media companies are looking to get into streaming video as it continues to grow more popular. On-demand music service Spotify is the latest company rumored to be in the planning stages of such a service, perhaps a surprise to many since its focus has thus far strictly involved music. But two sources say Spotify intends to grow into an on-demand music and video service, including original content.

Spotify aims to compete with the likes of Netflix and HBO Go. “Our sources said that Spotify is looking for partners that can help it fund and create exclusive content. It is unclear if these talks would lead to a new round of investment in Spotify itself,” reports Business Insider.

While Spotify is worth billions on paper, its music-streaming business model has “extremely thin margins,” notes the article.

“Spotify does not own the music its customers listen to. Music labels do, and Spotify has to pay the labels every time a customer listens to one of their songs,” the article explains. “As Spotify gets more popular, the labels charge more and more.”

This is not a very different problem than the one Netflix faced about a year ago. It didn’t own any of its video content and was being charged exorbitant amounts to license it for consumer use. So it experimented with producing original content, such as the original series “House of Cards.”

“The series was not cheap to produce. It costs ~$5 million per episode, and that doesn’t include marketing expenses that put ‘House of Cards’ posters all over the country,” writes Business Insider. “Netflix’s gamble was that ‘House of Cards’ would attract new subscribers to the service and that these people would remain subscribers even after viewing all 13 episodes. It hopes the multi-year revenues generated by those new long-term subscribers will more than pay for ‘House Of Cards’ substantial upfront cost.”

While it’s yet unclear if that gamble will pay off, there’s another example for Spotify to consider: HBO, which initially served as a cable channel that aired films after their theatrical runs, is now a premiere destination for original content.

“Today, people pay $15-$20/month to subscribe to HBO for original programming like ‘Girls’ and ‘Game Of Thrones,’” notes Business Insider. “Netflix and Spotify are betting that they can pull off a similar trick as the distinction between Internet-based video and cable TV blurs thanks to the rise of smartphones, tablets and Internet-connected TVs and set-top boxes.”

In a related story, TechCrunch reports that “Spotify announced with LG that it would be integrating its premium, paid [music] service on to a range of connected media devices from the consumer electronics giant. Devices will include Blu-ray home cinema systems, speakers and more, and they will start getting sold in April.”

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