(Preview) Spotify Spreads Its Wings, CapEx Explosions and Distinctions, Q&A on Viral AI Tweets, Anthropic, Giannis

Summary

Episode Summary: (Preview) Spotify Spreads Its Wings, CapEx Explosions, Viral AI, and Industry Analysis

Sharp Tech with Ben Thompson
Hosts: Andrew Sharp, Ben Thompson
Date: February 13, 2026

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Main Theme

This episode focuses on Spotify’s recent growth surge, the unique dynamics that propelled its dominance in streaming music, and how technology, strategy, and industry structure have shaped its moat. The hosts also touch on capital expenditure in tech, aggregation theory, AI’s potential in content creation, and compare the future prospects of Spotify and Netflix.

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Key Discussion Points & Insights

1. Spotify’s Dominance and Growth Milestones

• Spotify’s Explosive Q4:
  Sharp opens with Bloomberg’s report: Spotify added 38 million new listeners last quarter, reaching 751 million users and seeing a 19% stock jump—the biggest since April 2018 (01:31).

  • Quote – Andrew Sharp:
    “Shares of Spotify jumped after the Swedish music streaming giant added a record number of users...Paid Premium subscriptions increased 10% to 290 million.”

• Victory Lap for Daniel Ek:
  Ben recounts how this was Daniel Ek’s final call as CEO, framing it as a deserved victory lap for redefining the music industry ([04:23]).

  • Quote – Ben Thompson:
    “Spotify, whatever you want to say about it, you have to remember back when it started sort of dragging the entire industry kicking and screaming into this new world...”

2. What Makes Spotify Sticky? (The Moat Question)

• Convenience as a Product:
  Ben and Andrew reminisce about the evolution from cassettes and CDs to Napster, iTunes, and finally streaming. Ben frames Spotify’s main product as “convenience” ([06:47-08:05]).
  • Digital track sales never matched the profits of the CD era.
• The Power of Bundling (with a Twist): Music streaming succeeded where other bundles struggled because of the major label oligopoly. Negotiating with a handful of entities made the universal music bundle possible ([11:23-13:18]).
• Personalization as the True Moat:
  The show highlights that Spotify’s real stickiness lies in its ever-improving personalization, not just access to songs. This unique user experience is compared to Facebook’s personalized feed ([17:02-20:43]).
  • Quote – Ben Thompson ([17:17]):
    “What’s interesting about Facebook is it’s this network everyone is on and yet at the same time, everyone’s experience is totally unique...That is what is uniquely capable of technology.”
  • Quote – Andrew Sharp ([20:38]):
    “And their ability to personalize, Spotify’s ability to personalize, is what distinguishes Spotify.”

3. Strategic Insights: Platform Ubiquity vs. Walled Gardens

• Daniel Ek's bet was to make Spotify ubiquitous—available on all platforms, not just inside one ecosystem ([16:13]).
  • Quote – Daniel Ek (quoted by Andrew, [16:13]):
    “We decided Spotify should work everywhere...regardless of whose ecosystem you’re in...Why was that the right bet in 2011?”
• Ben explains that ubiquity allows Spotify to maximize reach, feed data for personalization, and remain resilient, unlike competitors who were locked into ecosystem "walled gardens" ([21:18]).

4. The Aggregation Theory and the Value of Networks

• Spotify fully embodies Aggregation Theory: aggregating demand (users), managing abundance, and customizing at scale are what make the platform so powerful ([23:26-25:53]).
  • Quote – Ben Thompson ([23:26]):
    “The whole skill set of an aggregator is managing abundance. There’s already abundance on the Internet...If you’re in an aggregator position, you’ve been honing the skills to deal with the deluge for years and years and years.”
• AI and Abundance: The hosts explore how AI-created music likely enhances Spotify’s position, deepening its relevance as a filter and recommender in a world of infinite supply ([22:34-25:53]).

5. Spotify Wrapped: A Viral Growth Flywheel

• Annual user engagement campaign “Spotify Wrapped” is praised as viral marketing brilliance ([25:53]).
  • Quote – Andrew Sharp ([25:53]):
    “Spotify Wrapped. Undeniably brilliant. And every single year entertains me.”

6. Spotify vs. Netflix: Which Is the Better Long-Term Business?

• Cost Structures & Content Economics:
  • Spotify’s blessing and curse: Deals with a handful of labels mean straightforward revenue shares but limited margin upside ([27:02]).
  • Netflix’s strength: Owns content outright (fixed costs upfront, long-term control), but must continuously create new hits to justify subscriptions ([27:55-29:26]).
  • Quote – Ben Thompson ([28:04]):
    “They’re still paying out a big chunk of their gross revenue...[but] that’s always been sort of like a fundamental weakness for them relative to, say, a Netflix...”
• Netflix’s problem: Users don’t revisit video content as much as music, which makes music inherently “stickier” ([29:02-30:12]).
  • Quote – Andrew Sharp ([29:02]):
    “The rewatchable movies are effectively dead today, but Warner Brothers has a ton of the rewatchable movies, and Netflix has done well with rewatchable movies from the 80s and 90s and early 2000s. But there are fewer of them.”
• The hosts agree both businesses face tough structural challenges but remain attractive due to the scale and stickiness they’ve achieved.

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Notable Quotes & Moments

• On Tech Guys Being Right:
  Andrew Sharp ([00:33]):
  “What I found over the course of hosting this podcast is, is that the tech guys are usually right in the end and it really pisses me off time and time again.”
• On Music Taste and Aging:
  Andrew Sharp ([09:22]):
  “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. From 2005 to 2015, that’s...I don’t need anything released since then.”
• On Personalization and Sticky Networks:
  Ben Thompson ([21:18]):
  “For a network to grow, for it to persist and for it to keep churn low, you need to evolve.”
• On Aggregators and AI:
  Ben Thompson ([23:26]):
  “Their whole skill set, the whole skill set of an aggregator is managing abundance...Deepening your moat, like the fact that you are actually in the abundance makes your product better. It doesn’t make your product overwhelming.”
• On the Future of Spotify and Netflix:
  Ben Thompson ([28:04]):
  “They’re still paying out a big chunk of their gross revenue...that’s always been, though, sort of like a fundamental weakness for them relative to, say, a Netflix, which...all the benefit from that is just accruing to Netflix.”

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Timestamps for Important Segments

• Spotify Overcomes the Industry & Personal Tech Frustrations — [00:20–03:05]
• Spotify’s Creation of Value and Victory Lap — [03:45–05:25]
• Tech Transitions: Mix CDs to Streaming Economics — [05:25–09:42]
• Bundling Theory and Record Label Oligopoly — [10:10–14:07]
• Personalization, Networks, and AI Enhancement — [17:02–25:53]
• Spotify Wrapped & Listener Engagement — [25:53–26:43]
• Spotify vs. Netflix – Business Model Faceoff — [27:02–30:20]

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Conclusion

This Sharp Tech episode offers a rapid-fire, insight-rich dive into why Spotify won the music streaming wars, what truly makes it sticky and resilient, and how its personalization and aggregation strengths compound over time. With references to theory, pop culture, and industry strategy, Ben and Andrew deliver a conversation loaded with context, good humor, and practical takeaways on where music and media may go next.

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For the full conversation and more analysis, listeners are invited to subscribe for complete episodes.

Transcript

[A]

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?

[B]

Feeling self satisfied?

[A]

How so?

[B]

Well, we just sat down. You're talking about you have this new external monitor used for podcasting right in front of you camera. You're. And you're just like, you are so right. And I'm like, yes, I'm. I'm.

[A]

You know, this is what kills me, honestly. I fought you for two and a half years about getting an external monitor, a big studio display Mac that's sitting here on my desk, and you offered. As soon as I took over at Stratecher, 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, is that the tech guys are usually right in the end and it really me off time and time again. But here we are. You're coming through in crystal clear resolution and I love.

[B]

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

[A]

I got to 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. No, on premises. Pub.

[B]

Yeah, I'm drinking Diet Coke, so probably, probably.

[A]

Should we just cancel the pod here, call it a day? In any event, we won't do that. We're going to 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, they write. Shares of Spotify jumped the most in nearly eight 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 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. Their shares rose as much as 19%, the biggest intraday gain since April 2018. So I'm curious for general thoughts on Spotify, but first question is more specific. Has Spotify just won in streaming music? Are the Apple wars over at this point? Can we call it?

[B]

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

[A]

Okay.

[B]

I mean, Apple Music, there are subscribers, there's YouTube Music, there's other ones. But the big thing is no. 1. It's kind of like iOS versus Android. It feels like people don't necessarily switch a lot if they have one, they're kind of on it. But no one's going from Spotify to Apple Music. Whereas Apple Music users will slowly trickle to Spotify. We have a mutual friend of ours who was at Apple for a long time, would sort of defend Apple Music, and now he's not at Apple and he's like, actually, turns out Spotify is a lot better. Yeah, he was sort of raving about it.

[A]

But what's the moat? I mean, what's the stickiness for people who use Spotify versus Apple Music?

[B]

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. So Daniel X 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 sort of came on to sort of give his, like, you know, final thing, like, oh, here's our foundation going forward, which is just basically like an articulation of, like everything we did right in the past.

[A]

I was going to say it's something of a victory lap for Daniel Ek. When you look back at the last

[B]

15 years or so, for sure, and I think a deserved one. Spotify, whatever you want to say about it, you have to remember back when it started sort of dragging the entire industry kicking and screaming into this new world. And a new world that really fundamentally redefined what was being sold. You talk about this in the context of media generally, like newspapers is. It turns out they were actually a light manufacturing business with a delivery fleet. Right. They were a white manufacturing and trucking business. And no journalist, like, wants to hear that. No, we survived because of my brilliant writing. It turns out that really wasn't the case. And 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. Turns out they were all in big trouble. They're all competing with Each other. And we sort of talked about exactly that a week ago.

[A]

Yeah.

[B]

So in what was music, Music was also like a plastic manufacturing business. You made CDs. Right. And that's what you actually bought. There were lots of interesting things about that. Like you had the phenomena of bands having one great song and having to buy the album.

[A]

Yeah.

[B]

All of which sucked. And then you would obviously have to make your own mix CD and you get a CD burner and you could, you could make. Or even before that you would make mixtapes. Right? Exactly.

[A]

For the kids out there, it was actually very exciting to get a pack of like 20 CDRs and just make mix.

[B]

No, but even before that, this might have been before your day. What we would do is you would have like a boombox that had a record function and you would always have it with you with a tape ready to go. And then you would listen to the radio and when you light came on, you would quick run over and hit the record button so you could get the song. And then you would do that until your tape was full.

[A]

Yeah.

[B]

And then you could listen to your favorite songs missing like the beginning and end of them or like DJs talking over it or whatever it might be. One or the other.

[A]

That was my entry into music. Music was actual cassette tapes that were recorded from the radio. And then it got a little bit more exciting and easier once CDRs came around.

[B]

Right, but you can also get the real songs from. That's right. So, but, but what was. What did Spotify sell? Spotify sold convenience. You can still. In a world where Napster, suddenly you could go get any song you wanted that got sued out of existence. And there was like Nutella even before that. I've talked about. I would go on like FTP servers. You could like random FTP servers. You're connecting people's computers over the Internet. Yeah, yeah. And if you just paid a small monthly fee, you could get access to all the music in the world. And you could theoretically go and get your MP3s on the dark web or whatever it might be. And you could make your CDRs or you could sync it with your ipod and whatever. You know, there's people that did that. There's weirdos like you that still like boys buy digital albums.

[A]

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

[B]

Right. And to be clear, the digital selling of tracks never really made up for CDs. Like selling. Selling a 99 cent track when actually there's only one good track that you want is not as good of a business as selling a $15 or $60 CD, most of which is filler. So by the. Do you. Before we progress.

[A]

Okay. Oh boy.

[B]

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

[A]

Wow, putting me on the spot here. This is embarrassing. I don't ha. 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. The disgust.

[B]

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

[A]

Well, and you know what's even more embarrassing? The reason I don't have a Spot 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. Or pirated back in the day. And that's. I'm set as far as that's concerned. I'll occasionally buy one song on Apple and beyond that, you.

[B]

You. You got digital storage for my cloud. I'm satisfied. I'm not going to push you any.

[A]

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

[B]

Well, so. So Spotify sells convenience. And it turns out that it's funny because this. This came up. Speaking of the. The Cheeky Pine podcast we were talking about. The idea of bundling and bundles in theory are amazing for everyone. Everyone makes more money, the consumer gets more choice, more access. It's a great deal. You saw this with tv and the weird thing is is everyone has to be forced into a bundle and everyone tries to bail on it sort of as soon as possible.

[A]

Yeah.

[B]

And you know, TV is the classic example. You had this that was forced on it by geographic limitations. You had like cable's so interesting because it started in little towns and then came into the cities. The cities that access had easy access to the TV signal. If you're over the Allegheny Mountains in like central Pennsylvania, 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. And then Ted Turner is like, oh, I could just use satellite dishes to beam directly to the base station of all these cables. And boom, you sort of have cable. And everyone makes more money. And why does everyone make more money? Because everyone is paying for everything and that is better. The big winners were you and me because we are sports junkies. And so we get access to all this sports, which is 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. And we paid, you know, 100 bucks a month or whatever it might be and got access to all these sports. And it was amazing.

[A]

And it should have cost $250 a month or something like that.

[B]

Well, you will see what happens as we sort of get out. We're approaching those territories 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, it's really hard to get the most value valuable stuff in there because the most valuable stuff can charge a lot to its biggest fans 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 sort of funnel people back into this constrained space given these sort of dynamics. What's interesting about music and what made music unique is because of the label sort of oligopoly. And maybe this is something for you to consider when industry concentration can actually be pro consumer, which is arguably, I think, what happened in music, because there was an oligopoly. If you could just get the four labels or I think the three labels and more, and like the independent label or whatever, whatever it is, then you could have bargaining power if not all the music. Right. Well, the key Thing is, you had someone to bargain with. If you're bargaining with a disparate mass, it's very like you can exert control in certain circumstances like say Google or Facebook or sort of aggregators generally do. But to get the supply organized in a way, you can offer a compelling bundle. It's easier to negotiate if you have a limited set of you know who to negotiate with.

[A]

And whereas if it's like a thousand different people, then you have to worry about the edge cases and the deserters and particularly the high end earners.

[B]

Right. Spotify. If everyone is, is totally separate and Spotify has to go to every individual artist, your tiny little artist who doesn't know, doesn't have any income is like, yeah, I'll take whatever you're going to give me. Right.

[A]

I'll take the audience.

[B]

You go to like a Taylor Swift and it's like, how much are you going to have to pay her to get her sort of in the bundle? But you know, Taylor Swift will complain about her label, but actually in this case it's because her music was owned by a label that it could be part of this negotiation as part of all these sorts of things. And so what happened is you have, I'm missing the numbers but hundreds of millions of people paying, I don't know what the price is. Now it was $10 a month. Now it was up to 12, 13, $14 a month.

[A]

Yeah.

[B]

The key thing is, is there's a lot of people who are now paying less for music than they did before. The music omnivores that would buy a gazillion CDs and were actually spending like 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 the fact that people like me or the theoretical Andrew who don't really listen to that much music or listen to the same stuff again and again, it's just whatever, it's $15 a month. And then if the hot new album comes out, I could easily listen to it because I have a Spotify subscription. I'm overpaying, honestly for Spotify. And you're not wrong to say I'm not going to pay for it because I just listened to all the albums. Right, exactly. So you're actually in this case. I can't even be too mad at you because it actually does make logical sense. But it's also, it's convenient. I just pay it every month. I have a family plan. My daughter uses it a ton. She listens like she listens to a ton of new music. Like she's in college right now. So, like it works. It's fine. I have no problem paying it every month. And because there's. You make up, you give a bargain to your whales by getting everyone else to pay the same amount they are. So this is the one example of a bundle that's sort of been reformed since then. And Spotify powered that made it happen. And obviously there's other alternatives 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 they made 20 years ago. Is it at the peak of the CD era, especially when you adjust for inflation? No. But all things considered, they're like the music industry is doing pretty well.

[A]

Dire predictions and outlooks for what the music industry could seem.

[B]

They were the worst in the worst case and it turned out they were the best case. But that's completely thanks to Spotify.

[A]

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, Daniel Ek on the call, part of the victory lap was him saying, we built our Ubiquiti 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, Samsung, Sonos, all of them seamlessly. Why was that the right bet in 2011?

[B]

Well, so there's two parts of this. So before that he talks about all the personalization that they do. So the most famous is like the Discover Weekly that introduces new songs to you. But now there's all these mixing and the algorithm that shows you stuff that Spotify thinks you're interested in.

[A]

Yeah.

[B]

And what's interesting about this is this overall dynamic about network companies. And by network companies, the most famous obviously is Meta or Facebook. And we've talked about this idea. What's interesting about Facebook is it's this network everyone is on and yet at the same time, everyone's experience is totally unique. It's this sort of 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. Your. You at your, your college email address. But then it expanded and friends and family and people you know. And now it's gone far beyond that to. It's just all user generated content generally. Like when you watch Instagram reels blatant ripoff of TikTok which sort of got there first. This idea that actually we have infinite content. If we can be really good at sorting through that content, we can deliver you consistently compelling stuff that you are engagement you'll like.

[A]

And it's from people you're not following. People you've never met before. People.

[B]

That's right.

[A]

Have no idea about.

[B]

No. Like if you're watching reels, you basically never see a reel from someone you know. Like it's, it's pure, it's entertainment that that is what it is for better or worse. And as we've been discussing for the last six to nine months, turns out you can really twist the dials on that and just get people locked in more and more and more and more ads are there and all these sort of things. Yeah.

[A]

In Spotify's case is a situation where the scale that they've achieved gives them the ability to just better personalize than any of their competitors. And the advantages just compound.

[B]

That's right. So what's interesting about these networks is if you're a. On the outside, if you're a user, everyone, it's like we talk about, we're 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. 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 face of Facebook, billions of individualized products. That is what is uniquely capable of technology. It's actually, even though it's a single network, the experience of that network at scale is totally unique and separate for everyone. Now there's like broader sociological questions about this. Like no one is actually having a shared experience. Everyone ye everyone's having a completely individualized experience. But what is compelling about this is you can have like the initial Spotify, everyone just has access to all music. That's what they sold. That was the V1 is you're selling convenience, you get all music. But that product is easily replaced. With say an Apple music. If all you're doing is like searching for a song that you already listen to. Like for you and me, the experience of Spotify and Apple music is basically the same. It comes down to like different UI choices. Right, right. All I'm doing is searching for the 90s alternative playlist. Like that's really that all that I care about. You're searching for like 2000 crappy rap or whatever it might be. Yes. So.

[A]

And their ability to personalize, Spotify's ability to personalize is what distinguishes Spotify.

[B]

That's what keeps people on.

[A]

It's exactly. It's been a 15 minute answer to my question at the top about what the stickiness is first.

[B]

They're just way better at this and you're in there and they know you. You've been listening to people on Spotify, been listening to Spotify for years. Like Spotify has you pretty dialed in sort of at this point.

[A]

Yeah. And because in 2011, was that. Did Daniel X 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?

[B]

That's a good question. I would love to ask him. 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. Although I do know Gustav, one of the new CO CEOs very well. So we'll see. Maybe I can ask him. But I just think it's an interesting object lesson about how networks evolve in generally. I think when Spotify started it was. It was just such a heavy lift to get the industry over the line of look, this is better for you to put all this stuff available for one price. Stop trying to recreate the CD that's that world's dead and God 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. And we've seen how Facebook has evolved and Spotify itself has evolved and it evolves in this really interesting way which is you think about a network as being what makes Capelli is it's the same thing for everyone. And the actual implementation of tech based networks is it's totally different for everyone. 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.

[A]

Yeah.

[B]

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

[A]

So in a situation where AI music proliferates, you think, A, humans are still going to want human music number one 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?

[B]

People are like, oh, Spotify needs to make AI creation tools, right? I'm like, does Spotify sell guitars? Right? Do they do like the, you know. No, the AI creation tools can exist. All that means is more supply for Spotify. And certainly there's a worry or concern that 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. This is similar to the YouTube issue, right? Like YouTube. Spotify and YouTube have a lot of similarities. They're also like, YouTube is like, to everyone else, like, to. Netflix is Spotify's biggest problem for sure. But their whole skill set, the whole skill set of an aggregator is managing abundance. There's already abundance on the Internet and there's a bit where if you're in an aggregator position, you've been honing the skills to deal with the deluge for years and years and years. So 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, like the fact that you are actually in the abundance makes your product better. It doesn't make your product overwhelming. And 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 like using natural language and asking like for different stuff. And they can understand that. And by the way, most people aren't necessarily gonna use that, but enough people use it, they get signal from that of understanding what requests go with what music that they can generalize to the entire usage of the app. And it's just, I just enjoyed their articulation of this because this is a little extra tidbit to go with the aggregation Theory idea, which is, why are aggregations. Why are aggregators so powerful? And 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? It's actually by. On one side, from one perspective, you're this one entity, and from the other perspective, you're actually the most customized, unique delivery, individual experience to every single user that you have.

[A]

Yeah, well. And Spotify wrapped. Undeniably brilliant. And every single year entertains me.

[B]

I always kind of dread it because, like, my Spotify Rapt is number one. It is fairly embarrassing. It's like music I listen to, like, usually with the kids in the car. So there was a lot, a lot of K pop demon hunters. Taylor Swift had a new album this year, so obviously that was on there. And then there's like my, like, above and beyond podcast. That is basically the only thing that I listen to. I'm working, so there you go.

[A]

Great. Well, I always enjoy. We get a lot of sharp tech listeners, a lot of goat listeners, couple sharp China listeners.

[B]

Yeah, we do. I get the emails, like the true sort of, you know, listeners who, yes, their top four podcasts, our top five podcasts are all success, really. We love you. We see you, we see those tweets.

[A]

I really appreciate it on that basis alone. All right, final Spotify question. And this is just in the bar, in the. In the pub. In the striped 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?

[B]

Ooh, that's interesting. The problem that Spotify always had is tied into why the business was possible in the first place. Because they were only negotiating with four entities, they could pull probably the definitive digital bundle together. What is a bundle that was actually created by tech in a world without geographic constraints? It was the music bundle. And the problem is that the way to get them on board is those entities getting pretty good to have, like, a direct share of their gross revenue. Right. And so they've, you know, they have more and more power of the industry. They can make hits or not, and they get it back through, like, marketing deals. Like, the Discover Weekly is not completely organic. Like, there's, like, you to get stuff in there and there's opportunities.

[A]

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

[B]

That's right. The labels need for sure. And their Power has certainly increased, but they're still paying out a big chunk of their gross revenue like that, that it is a percentage. So as their revenue goes up, the revenue that they pay out also goes up. And so they've done a good job of sort of in adding Sting, adding on podcasts, adding on audiobooks. So it's not just sort of the labels. That's always been, though, sort of like a fundamental weakness for them relative to, say, a Netflix, which the more sort of original content they do, you pay up front. In Netflix, you know, they try to not do residuals, for example, because they want to own it or like, so Kpop demon hunters, Disney or Sony got a fixed amount of money and all the benefit from that is just accruing to Netflix. They're not like 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.

[A]

Exactly. Yeah.

[B]

And so you have to always be making new stuff. And it's really interesting. Like, this is part of the. I think, you know, one of the Warner Brothers bits is you have this golden era of TV, like sort of like the 80s, 90s, 2000s, where you did generate music, like content. Right. Like your friends or your Seinfeld people do just watch it again and again, like, totally.

[A]

I mean, it's what I, I wrote about it on Sharptext like six weeks ago or whenever the Netflix deal first went through. The rewatchable movies are effectively dead today, but Warner Brothers has a ton of the rewatchable movies, and 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. And so that's where I do kind of wonder whether the Spotify cost structure will end up looking better in the long run. Unless Netflix can engineer like a monopsony type situation where they're the only game in town and they can just drive costs down on new content. But.

[B]

Right, we'll see. I mean, yeah, so that's why the question is interesting because, yeah, they both sort of have a fixed cost component that they can't escape.

[A]

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 Strikery and the Structechary plus bundle. Check it out and if you've got feedback, please email us at. Email sharptech FM.