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Internet Profits?

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I am still at a total loss as to how anyone thinks internet-based businesses will make money. Yet our betters sure love them.

Spotify tossed another scary financial figure into the ring this morning, with 2015-year losses topping an astounding $188.7 million on revenues of roughly $2.12 billion. That widens a year-2014 loss of $176.9 million, and brings cumulative losses to $698.1 million since the company started in 2008. All of which raises the question over whether streaming music is a viable business model.

The plunging losses explain a recent, $1 billion tranche in loans, which brings cumulative loans and debt to roughly $1.56 billion. But whether that debt can be properly services is now a very real and pressing concern.

The question analysts and the music industry is pondering is whether this math can somehow make sense. Heavy losses aside, other metrics are booming, including top-line revenues and paying subscribers. For 2015, Spotify counted total revenues at $2.12 billion, up 80 percent over 2014. Paying subscribers were counted at 25 million, a figure Spotify has since upwardly revised to 30 million (while hinting at 100 million total users).

Meanwhile, Spotify says payments to rights owners are exploding: the company claims €1.63 billion ($1.82 billion) in royalty payouts last year, up 85 percent. But a gigantic chunk of that appears to be going to major label partners, all of whom carry equity positions but are simultaneously upping licensing fees. Meanwhile, artists continually complaining of decreasing per-stream payouts, with data to back it up.

The next step is a massive Wall Street IPO, one that could generate billions in fresh capital. But here’s another problem: analysts don’t think Spotify will ever reach profitability, at least without drastic changes to its core business model. “Their operating and net losses were both bigger in 2015 than 2014, and that’s a bad sign for future profitability,” Jan Dawson of Jackdaw Research told Mashable.

And then there is Twitter, which has never turned a quarterly profit.

But what do I know? I’m not a Silicon Valley libertarian.

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  • Snarki, child of Loki

    They’ll make it up in volume.

  • rwelty

    those that have succeeded have mostly done it by collecting personal information and quietly selling it to marketeers. they don’t generally admit that in public.

    • postmodulator

      Spotify is collecting a lot of data about listening habits, but I assume they’ve already monetized that.

      People love Spotify(I have been a paid subscriber for years and could not live without it), but they criminally underpay artists and still don’t make any money themselves. In conclusion, the genius of capitalism!

      • Steve LaBonne

        I feel the same way. I will enjoy it, not without guilt, while it lasts. The classical catalogue is really pretty amazing and I will miss it a whole lot when it’s gone.

        • postmodulator

          There was an interview with an indie musician from the 80s, I think Dean Wareham from Luna and Galaxie 500. He said that his Spotify royalty checks were infuriatingly tiny — like, pennies every quarter — but admitted that he was a subscriber too.

          • nixnutz

            It’s probably infinitely more than he’d be making from record sales and radio plays under the old model. Bands like Luna generally never see a dime from their record contracts after the advance and it’s not like they have any classic-rock radio staples.

            Personally I still subscribe but only listen every few months. I like having it in case but it wouldn’t be worth any more than I’m paying.

            I think there are problems with the distribution of payments–indie artists get screwed as do a lot of artists with pre-internet deals–but the music industry is what it is now. Some giants are still very rich, Lady Gaga is as rich as David Bowie with a fraction of his catalog, but the second and third-tier acts don’t have private jets any more. Indie artists and the majority of acts that would get signed and never recoup their advances are no worse off today.

            • postmodulator

              The advances for second and third tier acts used to at least let them quit their day jobs and make music full time.

              • ThrottleJockey

                I was always under the impression that the advances were fool’s gold, no? Isn’t that how many acts got in bankruptcy, they spent heavily against the advance not realizing how many actual expenses (marketing, travel, promotional, etc) were due to come out of that advance? I seem to recall that was the deal with Toni Braxton among others.

            • Scott Lemieux

              It’s probably infinitely more than he’d be making from record sales and radio plays under the old model. Bands like Luna generally never see a dime from their record contracts after the advance and it’s not like they have any classic-rock radio staples.

              I trust the self-refutation here is obvious. The advances count! They’re real money!

              • Chaz

                He got the advance in the ’80s. We are talking about his current income. He is (I presume) not producing albums anymore. With Spotify his royalties are a few cents, without Spotify they would be nothing. If Spotify disappeared this guy’s not going to get another advance.

          • The Lorax

            I spend more on music ($120/year) than I ever have before. Where is the money going if not to the artist? The labels?

            • MyNameIsZweig

              That’s pretty much how it’s always been, for the vast majority of artists.

        • Scribd went from all you can eat everything (including audiobooks) to all you can eat books plus 1 audiobook credit/month to 3 book and 1 audiobook credit per month. This was based on typical consumption patterns (most subscribers were under this credit limit) and was supposed to open up the catalog (as they’d be more attractive to publishers, I’d guess). However, they seemed to have lost a lot!

          They also have a set of “selects” each month which do not cost a credit to consume. They’ve been pretty good on those and the nice thing is that it broadens my reading with no effort on my part. The discoverability on all these streaming and ebook/anything platforms is unbelievably sucky.

          Will this help sustainability? Dunno! It’s still a pretty great deal esp. if you like enough of the Selects. (Really listened to and read some great stuff there! Lot of self-help crap too.) Anything you got through is there forever, so you do build up a library if you like rereading at all. (All gone when your subscription lapses of course!)

          I still find it perplexing that publishers can’t more effectively monazite their backlists at low cost to the consumer.

          • The Dark God of Time

            Scribd has a lot of classical music scores you can’t find online at the IMSLP/Pettrucci site because of copyright issues, like post-WWI Stravinsky.

            • Scribd is really interesting for the variety of the content…comic books and scores stand out there.

              The tech books were better (for me) when it was all you can eat. Typically I hop around a lot of tech books checking out bits and pieces and that’s no longer feasible esp. as it competes with my other book credit budget. I need to pony up for Safari online (which is an order of magnitude more expensive, but I can probably get the uni to pay.)

            • prufrock

              …like post-WWI Stravinsky

              That drives me crazy. Copyright can’t incentivize Stravinsky to create; he’s dead! That’s dead, dead, dead, dead, dead, dead, DEAD! He’s been dead three months longer than I’ve been alive!

              • cpinva

                “Copyright can’t incentivize Stravinsky to create; he’s dead! That’s dead, dead, dead, dead, dead, dead, DEAD!”

                that’s what they want you to believe!

      • Crusty

        What do you do with my listening habits other than sell me music?

        • Steve LaBonne

          I expect that’s a big part of the problem. It’s way less valuable info than we give away to Google and Facebook.

          • postmodulator

            You sell information about touring bands, but there isn’t any more money in touring than there is in selling records.

            You also advertise merch, and Spotify does this, but not aggressively or effectively — I would buy band t-shirts, but they never show me ones I want.

            • ThrottleJockey

              Sounds like they need to study their data before selling it then!

            • Crusty

              And yet, without high tech data mining, random dudes know to find out who’s playing at the local venue and show up at the parking lot with unauthorized t-shirts to sell. Genius.

        • delazeur

          I’m 98% sure there are marketing firms that can use your listening habits to put you in a demographic bin and send you advertisements for things you are likely to buy. Have you ever read about Target’s ability to predict which of their customers are pregnant within the first month or two of pregnancy?

          • cpinva

            “Have you ever read about Target’s ability to predict which of their customers are pregnant within the first month or two of pregnancy?”

            they know who bought the home pregnancy test kits that they sell. it isn’t much of a genius leap from there.

            • delazeur

              I assume that is a big part of it, but it’s not the interesting part.

              http://bfy.tw/63nx

        • Couple thoughts:

          – I think a lot of companies trying to shop their collected consumer e-data as a valuable commodity are entering or are in desperation mode themselves and in need of things to stick on the balance sheet as assets.

          – The sort of data collected is often only useful in a very narrow sense (as your post suggests), and even then depending on how its collected, stored, and categorized may mean its more or less worthless when transferred to another party.

          And in both cases, if the data the company was sitting on was really some sort of data gold mine, they’d be making money off it themselves, instead of looking to sell it for whatever they can get.

          • delazeur

            And in both cases, if the data the company was sitting on was really some sort of data gold mine, they’d be making money off it themselves, instead of looking to sell it for whatever they can get.

            Eh, not necessarily true. If Spotify predicts what kind of clothes you buy based on your music habits (as they probably can), they can probably make more money off of that by selling the information to a clothing retailer rather than by trying to become a clothing retailer themselves.

      • Quite Likely

        It really is the epitome of “information wants to be free”. The marginal cost of Spotify playing you one more song is roughly zero, and market forces are continually pushing the price in that direction.

      • addicted44

        People love free shit. Or stuff that has been discounted on the backs of underpaying workers.

        For another example see sweatshops.

    • ThrottleJockey

      Had a good buddy who joined this industry in its infancy. After 3 years with an up close look at the economics he got out saying that streaming music would never make money. When Pandora IPO’d I asked if he had second thoughts. He said, “Second thoughts? Hell nah, I’m going to short the stock!” He’s always been a smart guy.

  • leftwingfox

    This is the Library model of the new Millennium. A company provides a public service, funded by wealthy private contributors for a public good.

    Except instead of wealthy philanthropists giving to a public commodity, it’s venture capitalists chasing a golden goose egg.

    • NonyNony

      venture capitalists chasing a golden goose egg.

      I love that imagery. The quest for the golden zero makes a lot of sense as a descriptor of the last 30 years of venture capitalism.

      What’s interesting is that they make a ton of money chasing that bag of nothing at the end of the rainbow. That’s why they keep doing it. And yet only a handful of companies really seem to be successful enough to justify doing it.

      • pseudonymous in nc

        There have been a few pieces written about the VC-funded startup stuff that’s specific to SF (or SF and a couple of other cities) and how it’s mostly just subsidized services that are used by other startups — meal delivery, laundry services, Taskrabbit stuff — who are also running on VC money.

        Basically, parental replacement services for twentysomethings.

        • AcademicLurker

          Sort of like during the’49 gold rush, the people who sold picks, shovels and dry goods made out like bandits, while most of the miners ended up with nothing.

      • Brett

        They only make a ton of money if they manage to sell their positions to someone else “greater fool” style with businesses such as Twitter and Spotify. Or if they sell the startups to the Tech Giant firms like Google and Facebook, which is another favorite option.

      • guthrie

        Odd how much money disappears in salaries and costs and services associated with the new business. One might accuse them of running a scam whereby they all get paid a lot for attempting something unlikely.

    • Yankee

      The real public good is to be found on streaming radio stations such as KEXP featuring playlists generated according to the actual tastes of actual individuals, and who make their money the honest way: they ask you for it.

  • NeonTrotsky

    My understanding is that Spotify is basically way undercharging for membership right now to try and get as many people as they can to sign up before eventually raising the price. No idea if it will work out.

    • Steve LaBonne

      I would very cheerfully pay double what I do now if necessary to keep it going. It would still be money well spent.

      • Mobile in general has been crap for sustainability cf the Apple App Store. You read an increasing number of articles by people saying they’d rather pay more and get something that can continue for more than a year.

    • NonyNony

      If that’s their idea, they’re nuts. Because the record labels will just jack up their royalty charges to match.

      • ThrottleJockey

        That’s the fucking problem. All the numbers above are meaningless given where they are in their life cycle, save one: The ratio of revenue growth to royalties growth. Revenue only grew by 80% but royalties grew by 85%. This baby can’t scale.

        • Bufflars

          Right, it’s not necessarily true that a business model like Spotify’s can’t make a profit in theory, it’s just that the way copyrights are set up right now, the rent-seeking record labels are siphoning up all of the money in the system.

    • pseudonymous in nc

      It’s a version of what Maciej Ceglowski called ‘investor storytime’: ‘someone pays you to tell them how rich they’ll get when you finally put ads on your site.’ The promise of jam tomorrow is what fuels the tracking cookies and data mining, which in turn fuels the ad blockers, which in turn sends the publishing industry into the shitter.

      It’s also venture capitalists funding stuff they like because they have so much money and want all the shiny things.

      That it means the actual artists get stiffed — more so than ASCAP / PRS for radio — is beside the point, because tech doesn’t owe musicians a living, or something.

    • Brett

      It’s a mistake. They should set the subscription price higher, offer some extra perks to go along with it just for subscribers, and stop worrying about the number of people using the app who aren’t subscribers. It’s not like the artists will care either, as long as they’re getting paid decently.

      • NeonTrotsky

        They really don’t pay them that well though, even big name artists are getting paid like 10 grand for their streaming rights.

        • Brett

          Right now they don’t, but that’s because of the “freemium” set-up with a low subscription price.

          • Bill Murray

            Partially, but also it’s because of the type of rights that are sold and the deal the artists have with labels for those type of rights, especially with labels that are invested in Spotify

            • Arouet

              Ding ding. The story is how the labels found a new way to get their nut and screw the artists at a time when they should be largely redundant. This is not Spotify’s fault, nor that of music consumers. I find it really difficult to believe that the median Spotify subscriber spent more than $120/year on recorded music before.

          • The Lorax

            How does payment go on Apple Music? No freeium there.

  • MikeJake

    It appears that they could not disrupt the record labels.

    • Just_Dropping_By

      The record labels were already disrupted by on-line piracy. Streaming was intended to disrupt on-line piracy, which it did to at least some degree.

      • Philip

        A surprisingly large degree. But because the record labels are, as far as I can tell, basically stupid, they are determined to trash the streaming industry and bring back piracy. It’s the same problem as with the big studios. Netflix has trouble holding onto anything because the studios make insane demands, things get dropped from Netflix (or Amazon Prime video or whatever), LO AND BEHOLD that studio’s movies get way more traffic from pirates! I really don’t understand the thinking.

        • Linnaeus

          This is one reason why I ended my subscription to Netflix. There were just too many movies that I wanted to see, but couldn’t get. Couple that with the fact that Netflix made streaming the default subscription and you can only get DVDs as an add-on, and it turns out it’s just easier for me to get movies from the public library.

          • Just_Dropping_By

            That’s odd, because I have a DVD-only Netflix subscription, which I have in large part because of the selection issue. Did you only join after they split up the streaming and DVD subscriptions?

            • Linnaeus

              Yes, or rather, I re-joined after they did that. I noted the correction downthread.

  • Mike Furlan

    Amazon went 20 years without a profit.

    • Ahenobarbus

      But investors (especially early ones) made a fortune. It’s perfectly rational to believe both (a) Spotify won’t ever make money and (b) I can make money by buying its stock.

      • ThrottleJockey

        Yep! The iron law of business: Timing is everything!

    • Philip

      Amazon is a unique case. They could basically flip a switch and make billions in profit, but they don’t have to because everyone is confident that someday they will.

      • ThrottleJockey

        Kind of like fiat currency.

        • I really liked the Fiat I drove in Italy.

          • Ahenobarbus

            You can buy parts and accessories for the Fiat at Amazon.

    • NonyNony

      Amazon’s business model was “we’re going to be the worlds biggest catalog sales fulfillment stop, but with an online catalog instead of a paper one”. They’re basically doing the same thing that Sears & Roebuck did back in the late 1800s. It was a solid business model from the beginning and the only “new ground” it initially broke was the fact that the catalog was a website instead of a paper book (which meant that they could bring in browsers who would never think to order from a catalog but would check out a website).

      Amazon could have made a profit after about 5 years, but they intentionally kept spending their profits on acquisitions and researching new tech in order to keep the hype engine going. They knew that as soon as they made a profit they’d have to keep making the same profit, the hype engine would die down and they’d turn into a normal company with the same expectations any other company had (they’d learned the lesson of Microsoft – they were going to extend that honeymoon period with investors as long as possible).

      Very few internet companies are in the same space as Amazon.

      • I think it’s also important that Amazon started out as a bookstore, so you really didn’t think of it as buying from a catalog. Much as I enjoy being in a physical bookstore, buying books is not the same as buying a dress or a pressure cooker. You don’t really need to have the physical book in front of you to know if you want it. That probably got over the psychological barrier of buying online for a lot of people, and then the store expanded to music and movies, which work on a similar principle. Other consumer goods came much later, when the Amazon brand was already established, and online shopping had been normalized.

        • Richard Hershberger

          To put is another way, the point of selling books is to sell access to the information contained in it. The physical book is, apart for some fetishists, incidental. Hence the Kindle download as the logical conclusion. Related to this, books (and a bit later, CDs) are relatively compact items, so putting them in boxes and mailing them isn’t simply stupid. Compare this with the notion of shipping fifty pound bags of dog food to your door.

          • Book download sales are decreasing and sales of physical books are increasing.

            • Richard Hershberger

              I suspect, though can’t prove, that some vague-but-significant reason for the decline of book downloads is a decrease in first-time ebook buyers. When I bought my first one, I went through a cycle of downloading books from my youth (i.e. my 20s and 30s).

              CD sales went through the same cycle. Through the 90s record companies could transfer some classic album, with the costs long since paid off, to CD and issue a press release. People would line up for the opportunity to lay down fifteen bucks for a CD of Sergeant Pepper. Then a couple of years later they could take the same classic album, remaster it, issue a new press release, and people would line up again. For a third go-round, try fancy packaging and a commemorative booklet. Those were good times for the record industry, since it had fantastic sales without the bother of spending money on new artists. This was also, not coincidentally, the era when they abandoned artist development in favor of signing a bunch of people and throwing them against the wall to see if any stuck.

              Eventually it turned out that people weren’t willing to buy a fourth copy of Sergeant Pepper, even in the super-special numbered limited collector’s edition. Panic reigned. Then downloads came along and the terms of the discussion went in a new direction entirely.

              So I’ve gone through my phase of downloading a bunch of Hornblower and Flashman books[1]. I still do some of that, but at a much slower pace. Most of what I buy are new releases. Furthermore, I have developed a much better sense of what books I want in physical format. (Anything where the visuals really matter; anything where I want to be able to have my fingers stuck in three places so I can flip back and forth; anything I think I will still want twenty years from now). So some of my purchases are downloads and some are physical books.

              [1] Pro tip: as good as the Flashman books are, Fraser’s McAuslen stories are better. You can get them collected in a single download for a very reasonable price.

              • Honoré De Ballsack

                [1] Pro tip: as good as the Flashman books are, Fraser’s McAuslen stories are better.

                Well, they couldn’t be much worse, in my opinion. As historically clever as the books are (and they are clever), I never managed to find the character of Harry Flashman anything other than a one-note a**hole, which made the series pretty boring and tedious to read. (Full disclosure: I think I only made it halfway through the second book before I quit.)

          • Linnaeus

            There are a couple of nonfetishistic factors to consider when comparing physical books to e-books:

            1. When you buy a physical book, you own it outright. You can lend it or sell it as you see fit. That is, AFAIK, not the case with e-books; you own a license to the book and you can’t lend it (with some narrow exceptions) or sell it. I can’t even sideload a purchased book from my e-reader onto my computer.

            2. Physical books don’t become obsolete in a technological sense. At what point will I need to buy a new e-reader device? What happens to my e-books when my device is no longer current?

            It’s for these reasons that I haven’t bought many e-books. I use my e-reader mostly for reading books borrowed from my public library or for reading documents in a format like PDF.

            • Manny Kant

              There are also books that do exist for the purpose of being physical books – coffee table books and fancy art books, for instance. A lot of children’s books. Books whose purpose is to impress visitors to your home. For some people, books being read for class, so that you have the ability to take notes in them. There’s probably a fair number of other examples beyond pure fetishism.

          • GFW

            Oddly enough, I recently purchased a 25 lb bag of rice from Amazon. My grocery store has switched up the options in the bulk section and no longer carries the “conventional but still healthy” rice I like, in favor of the organic rice that costs more.

      • alex284

        Also Amazon could make bank by offering its customers the unique service of sales tax evasion, but that gravy train might be coming to an end.

        • Brett

          It is at an end, at least in my state. A while back, I noticed that state sales tax was being added to my orders.

          Personally, that was never the deciding factor in purchases from them for me.

    • andrew97

      Amazon’s business plan is to reinvest every dime they earn back in the business until they become the biggest retailer the world has ever seen; this is why they don’t post profits. Bezos’s lack of focus on short-term profitability is kind of refreshing.

      • Crusty

        “Amazon’s business plan is to reinvest every dime they earn back in the business until they become the biggest only retailer the world has ever seen; this is why they don’t post profits. Bezos’s lack of focus on short-term profitability is kind of refreshing.”

        It won’t be so refreshing once there’s zero competition.

        • Linnaeus

          Yeah, it’s funny how there are no more monopolies once you put things on the Internet.

      • infovore

        Amazon’s business plan is to reinvest every dime they earn back in the business until they become the biggest retailer the world has ever seen; this is why they don’t post profits. Bezos’s lack of focus on short-term profitability is kind of refreshing.

        I think you mean Bezos’s focus on lack of short-term profitability is kind of refreshing in light of what you wrote.

    • Murc

      To echo what others are saying: there is an enormous difference between choosing not to post a profit (“We could pocket our gains… or we could reinvest them into ourselves!”) and being unable to post a profit. (“We need another round of VC or we’re fucked.”)

      • Philip

        To wit, the hilarious amount of money they wasted developing the fire phone.

        • Crusty

          Why wouldn’t anyone need that? Just call 911.

  • so-in-so

    It sounds like the labels have found their way to profit off streaming – by upping the rights fees without passing any of it on to the artists.

    When Spotify implodes, they write-off their equity and look for another startup to “invest” in. Or, shrug and say ‘see, streaming can’t work as a business model, back to CDs…”.

    • NeonTrotsky

      Boy if record labels think they have a problem with piracy now…

    • NonyNony

      and say ‘see, streaming can’t work as a business model, back to CDs…”.

      Oh no no no. That’s not what’s going to happen. They’ve figured out that streaming is actually more profitable to them than actually selling the songs on a physical medium. Streaming is like the holy grail to them – a way for you to never actually own anything so you have to continue to pay them for access to it.

      That’s why I don’t think Spotify is in any danger. It doesn’t actually need to be profitable itself – the record companies will keep it afloat. They’re stealing money right now from sucker investors who think that Spotify is supposed to be an independent company that will be separate from the record companies and profitable on its own, but the record companies see it only as a delivery company for money into their own pockets.

      (At some point I wouldn’t be surprised to find angry Spotify investors launching a lawsuit of some sort against the record labels. Some kind of fraud or conspiracy or collusion charges. Because the non-label investors are getting played by the record labels – by jacking up their portion of the take from Spotify and not passing it on to the creators it’s pretty obvious to me what’s going on here.)

      • alex284

        I too wanted to comment on that statement, but from another perspective.

        Spotify’s customers aren’t going to switch from streaming to CDs, they’re going to go to another streaming service like YouTube or Deezer or they’re going to download illegally.

        • NonyNony

          Eh – some of the customers will turn to illegal downloads, but I suspect a large portion of the Spotify base just likes the convenience of the whole setup. Moving to torrenting things that they want to listen to is not convenient at all. If it’s the only game in town for digital music, then I guess, but I think it’s more likely that they shift back to iTunes and buying individual tracks than a mass turn to piracy.

          • Linnaeus

            I do wonder, though, if Apple is going to phase out the iTunes Store and push users to Apple Music.

      • Richard Hershberger

        getting played by the record labels

        I see what you did there!

  • I have a relative in the tech biz. He’s a standard BernieBro rather than a libertarian, but otherwise fits the paradigm. He has started several software/internet companies. For all of them his model has been the following: 1. Get venture capitalists to float the money (sometimes this goes through 2 rounds of funding), 2. Run the company for a while, just enough to show it just might, if you’re an optimist, be profitable, but never actually make any profit, 3. Sell company to somebody else for a profit, thereby making himself money and getting out before the whole thing falls apart. This is my model for the industry in general.

    • JL

      This is my model for the industry in general.

      Building up a business so that you can sell it for a profit is very common, but the people I know who have done this want the companies to be good companies. They aren’t selling them to get out before the whole thing falls apart, they’re selling them because after several years of work they want to pass it on to someone who wants to run it long-term, make their money, and start a new thing (or have a regular job for a while). Usually, the employees of the company have some equity by then and also get decent chunks of cash.

      Sometimes they continue to work at the company for a while (a year or two) after selling it. Sometimes the buying company makes this a condition of buying it.

      • L2P

        They don’t WANT the companies to fail; however, the handwriting is often on the wall. That’s why most of the startup people I know get out. After 3-5 years, they can tell whether something looks good and will get better, or looks good but will eventually fail, and they get out of those impending failures. And there’s a ton of those.

        The real gift these guys have is that they can keep talking investors into thinking there’s a next big thing coming.

  • ChrisTS

    Does Netflix count as an Internet business? I have no idea if it makes money, of course.

    Twitter seems to be trying to make money by loading lots more ‘promoted Tweets,’ i.e., ads.

    • Just_Dropping_By

      Netflix is forecasting that it will become profitable in 2017 (http://amigobulls.com/articles/netflix-is-set-to-become-solidly-profitable-in-2017), but I’ll be curious to see if that actually works out given the amount of stuff the studios have been pulling off of it lately.

      • Jean-Michel

        I dropped my Netflix subscription late last year after they let the Epix catalog go—not so much because of the Epix catalog per se, but because it’s obvious from both their actions and their statements that Netflix doesn’t give a shit about back catalog titles (as vividly confirmed by today’s departure of 500-odd Miramax films) and that their emphasis going forward is on original content (little of which holds any interest to me thus far) and whatever output deals they can make on a worldwide basis (which will increasingly limit their library to newer films by large conglomerates that are able to make deals on a worldwide basis, instead of territory-by-territory presales). Netflix is apparently missing their subscriber projections, but the shortfall is larger outside the U.S. and I suspect rate increases are at least as big a factor in the U.S. as Netflix’s indifference to any content made prior to the Obama administration.

        • Streaming Netflix is worthless if you care about movies. The value is in the discs.

          • Ahenobarbus

            What’s the status of commentary tracks on streaming movies? I’ve always assumed they are inaccessible, but wonder if that is changing. That’s why I stick with disks.

            Actually, I stream a lot of old movies on Hulu, but they have a great selection that just can’t be reached otherwise.

            • Just_Dropping_By

              I have no clue about commentary tracks for streaming movies, but I’ve seen articles saying that the availability of commentary tracks has been declining for DVDs and that the studios are generally expecting to get rid of them altogether. There’s apparently not much evidence to show that they increase sales at this point.

          • Linnaeus

            Yeah, and that’s why I didn’t like it when Netflix went from allowing you to choose DVDs or streaming (and you could add the other for additional cost) to only allowing you to get DVDs if you already have a streaming plan first. Lots of movies I’d like to see are DVD only on Netflix.

            • Ahenobarbus

              Maybe I misunderstand, but I have DVDs only with Netflix.

              I’m probably going to temporarily switch to streaming just for some TV series. Then I’ll switch back.

              • Linnaeus

                Maybe I misunderstand, but I have DVDs only with Netflix.

                Hm. Maybe I’m wrong about that, then. I know that when I had a Netflix account a few years back, you could choose between either. I then cancelled that account (cost saving at the time) and when I restarted it, I was offered only the streaming. Perhaps the option was still there, but Netflix made it harder to get to?

                ETA: Okay, I stand corrected. The DVD-only option is there, but Netflix concealed it a bit more. My complaint about their streaming service still stands, though.

          • Jean-Michel

            I used to be on the rental service, but they were so bad about stocking titles I wanted (and also had a bad tendency of not upgrading titles that were already part of their catalog in an inferior edition), so I finally just dropped it and now buy the movies I really want but I can’t get on streaming (or have some extra features I especially want). I also tend to import most of my discs, either because they’re totally unavailable in the U.S. or the U.S. editions are lacking by comparison.

            • Jean-Michel

              I should also add that the streaming services actually do have a fair number of titles that are either unavailable on disc in the U.S. or unavailable on Blu-ray anywhere, which makes streaming the only HD source for those movies outside of buying/renting a digital copy from Amazon Instant/Google Play/iTunes. Most of those Miramax titles that Netflix declined to renew are movies that are totally unavailable on Blu-ray, and ditto a lot of the Criterion titles on Hulu (which I assume will eventually move to their new service in collaboration with TCM).

    • andrew97

      Netflix is highly profitable. See here: http://ir.netflix.com/results.cfm

    • One interesting thing about Netflix is the increasing emphasis on original content. It’s basically become a more standard cable company a la HBO but controlling its international markets directly.

      (I just started subscribing a couple of months ago and the catalog difference between the US and UK is just fucking brutal. I have a bit of a list to get through, but the amount of “good” stuff I’ve been able to see rather than “background while grading” stuff is…not good.)

      • Murc

        I would really love to see a goddamn round of consolidation between the various streaming services.

        Seriously. I don’t want competition. I want ONE THING that has ALL THE THINGS that I get to with ONE app and ONE sign-on and ONE bill. None of this “well, there’s Netflix, and Hulu, and Amazon Prime, and Crunchyroll” bullshit. One. Thing.

        • I would be surprised if this happened.

          I was pretty shocked at the disconsolidation visible in the Apple “Passport” app. I mean, this was this thing that was supposed to keep all my boarding passes and tickets together, right? RIGHT?

          Sure, *if you install a SERVICE SPECIFIC APP for each service!* What?! No.

          So, I’m back to emailing PDFs, etc. Bonkers.

          Unless Amazon crushes them all, the content/channel thing will remain strong for quite some time.

        • NeonTrotsky

          Unfortunately it seems like things are trending the other direction, where every Network has its own service, because nobody wants to license streaming rights to anybody else.

          • Philip

            Which, as I said above, makes no goddamn sense unless the people in charge are total idiots. This is the perfect recipe for increasing piracy.

            • NonyNony

              Maybe they’ve finally figured out that money lost to “piracy” isn’t actually money lost and that they should be worried about maximizing the amount of actual money that is coming into their companies rather than the theoretical money that they are “losing” due to pirates?

              After all, if I can make a million dollars a year from subscribers to CBS All Access that’s a million dollars in my pocket. Why would I care that it leads to pirates passing around a few extra Star Trek torrents a year? I’ll prosecute a few of them to make an example out of them and make the piracy model less attractive to the marginal potential customers, but I’m not going to worry overmuch about getting people willing to pirate my shows on as customers – they’ve already advertised that they’re not willing to pay the price I want to charge, and I’m making plenty of bank from the pool of customers who are willing to pay that price.

        • ChrisTS

          Hmm. I like some competition, which is why Amazon makes me nervous.

          I do find searching Netflix and then Amazon for something to watch sort of annoying, but then there’s Acorn which has stuff none of the US streamers show.

          • brugroffil

            Roku is nice for this. You go to your homepage, search for whatever you want to watch, and it’ll tell you what services it’s available on and for how much on each service.

            • ChrisTS

              Ah. Thanks for the tip!

          • The Lorax

            Same with the Fanhattan (Fan) app.

        • J. Otto Pohl

          Isn’t that what Apple is trying to do? Have one big Apple service to “screw them all”?

          • Jean-Michel

            Apple is trying to get a TV streaming service going but is supposedly having trouble bringing content providers on board. The streaming scene is already so balkanized that even Apple can’t bring it all under their umbrella.

        • Brett

          This. I wish I could just pay a compulsory license fee with my broadband costs and then consume as much streaming content as I want, regardless of which company is providing. Cable television figured this out with “bundling” channels – internet companies need to get on with it.

          Ultraviolet was supposed to be like this, but it never quite got it going.

          • Dallan

            Isn’t the cable bundle dying because people hate paying for stuff they never intend to use, though?

            • ChrisTS

              God, I hope so. Why must I pay for 11 Christian channels?

              • Murc

                Because in a very real way those Christian channels are subsidizing the channels you do want. Cable subscribers cross-subsidize each other. That’s how it works.

                A la carte pricing would not be cheaper. It would, ultimately, probably be more expensive and result in a number of cable channels completely vaporizing.

                • Richard Hershberger

                  result in a number of cable channels completely vaporizing

                  I used to think this result would be bad, out of the self-interested thought that I would lose the narrow-interest channels I liked. The problem, though, is that any such channel starts out as the “smart, interesting stuff” channel and morphs, while keeping the name, into yet another bullshit reality programming channel. So the result is the same either way.

                • NonyNony

                  There’s a good test of near ala carte pricing going on right now with Sling TV’s service. $20/month to get either all of the ESPN stations plus the major Turner stations (TBS, TNT, Cartoon Network, CNN, etc.) or $20/month to get all of the Fox Sports stations plus the same major Turner stations. They’ve basically made it possible for even sports junkies to become cord cutters if they want.

                  It’s not quite ala carte pricing, but it’s a damn sight cheaper than any package I’ve ever seen a cable company offer (presumably because they don’t have to worry about maintaining infrastructure by foisting that off to the broadband carriers). It’ll be interesting to see if it holds up or not in the longer term – and if they can keep close to that pricepoint or not.

                • ChrisTS

                  I didn’t think of this.

                • Bill Murray

                  They’ve basically made it possible for even sports junkies to become cord cutters if they want.

                  Only for those people whose sports they want to watch only comes on one channel system. Just in the past week, I have watched sports on the ESPN Family of networks, the Fox family of networks, NBC Sports, CBS Sports and a few other non-aligned channels

          • L2P

            Don’t we do that now?

            I can watch all the HBO, Showtime, Scifi, ESPN, network, etc. stuff I want right on my Xbox. The downside is they’re all a different app, but that’s not a big deal.

        • What I would like is to be able to buy the new season of Jessica Jones from Netflix, the new season of Game of Thrones from HBO, and the new season of iZombie from the CW, without having to buy an entire subscription or go through local distributors. But I don’t see that happening, not least because I don’t see any way that can happen without the content producers jacking up the price of the individual shows to sky-high levels.

          • Murc

            As I said upthread a bit, everyone cross-subsidizes everyone else. This is probably the only way it can really work absent charging very high prices for individual pieces of content, which brings us back round to piracy issues.

        • Scott Lemieux

          Atrios used to make this point. People celebrate the ease of streaming over video rental, and it’s much preferable in principle. But because content rights holders have all the leverage, streaming is inevitably going to result in movies, TV etc. being fractured among many different competing services, which in fact blows. You have to pay for multiple different services and there will still be huge gaps in what’s available.

          Check out the movies being added to Netlfix this month. I get to June 22 without finding one I’d give a moment’s consideration to watching.

          • Murc

            I have friends who are paying as much for their streaming services as they would for a basic cable package and don’t get the benefit of getting to watch new shows when they air. At that point you’re exchanging one annoyance (at the mercy of the airing schedule) for another (at the mercy of the content catalog.)

            And, you know, fine, I guess, but still. I’m willing to pay money for content! Just… let me do it all in one place.

          • rhino

            I will save you the trouble, Scott, “Sin City, A Dame To Kill For” isn’t very good…

        • Linnaeus

          There’s a word for a company that is like that.

      • ChrisTS

        So, the UK has better/more stuff?

        • Not even a little bit. Worse, much less stuff.

          • ChrisTS

            Ah. Now I’m happy. :-}

            • Well, my misery was put to good use, then!

              • ChrisTS

                Heh. Sorry.

      • ChrisTS

        I love Bloodline, among others. Was House of Cards Netflix, too?

        • L2P

          Yes.

      • Part of the problem is that in most international markets, a lot of the stuff Netflix offers in the US has already been licensed by local channels and cable companies, including some of their original shows. They recently came into Israel, but immediately had to admit that it would be several years before their catalog was even remotely competitive with the local cable companies.

  • Philip

    It’s complicated. There are, obviously, some companies that are wildly profitable. Apple, Google, Facebook, etc. And a few others that could probably become so overnight (Amazon is the classic example, if they ever had to they could just stop undercutting everyone else). There’s a group that probably can make a decent but not big profit (Dropbox, box, maybe square) but are at risk of being muscled out by the bigger players (Dropbox and box are doing things amazon, Google, and Microsoft could all do eaisly). A few of the smaller startups (airbnb, Uber, Lyft) probably can’t be if they ever get regulated properly, but it’s not clear that that regulation will ever happen.

    And then the huge majority’s business model is commonly referred to as “investor storytime” which tells you everything you need to know. There is a bubble, and everyone knows it, because most of silicon valley has no way to make money apart from ever bigger funding rounds.

    • There are, obviously, some companies that are wildly profitable. Apple, Google, Facebook, etc.

      Note that these are the companies that own the platforms everyone else is trying to make money from, which no doubt is a significant contributer to the wildness of their profitability. I have to wonder if these companies can be considered ‘too big to fail’ given their place in the e-commerce ecosystem.

      • Philip

        I think Apple should probably have gone in a different category. Apple is still, fundamentally, a device company. You’re right about the other two, though. Especially since Google also now controls something like 80% of the smartphone market globally.

        • Pseudonym

          Apple makes money by spending $300 to make a smartphone that they sell you for $600. The internet side of their business makes money by making you buy a $600 smartphone every two years to use those services.

          • Dennis Orphen

            I bought my phone outright for about $20 new in the box. Does everything an iphone does. The camera isn’t as good. Does a few things an iPhone cant. like allowing the battery to be swapped by popping off the back cover with your fingernail. You can also insert a microSD card, up to 32 gigs. Holds a f-ton of photos, music voice memos, writings, etc. Dropped the phone and killed it? Pull out that card and your data is saved. It’s like your own personal cloud. And dont get me started on the $30 (net, all taxes and fees included) for unlimited everything (okay, not completely, 4G LTE data is throttled after 1 gig, extra gig is $5 whopping dollars if I need it, which I don’t, killed all the data sucking apps and use a data compressing browser). Posting this comment with said phone.

            What’s my point? Price and value something something.

            • Pseudonym

              I bet it doesn’t let you listen to your iTunes music or run your iOS apps or access your iCloud photo library though…

              • Dennis Orphen

                I know your probably joking but, my music is sideloaded onto the 32g microSD card, ripped from my CD’s and vinyl (a bit of a drag in real time I admit). itunes isn’t the only music player out there, and in my opinion is the worst. Even windows media player has a more intuitive interface (my opinion, once again). iOS apps? What do I need those for? They just waste data in the background (at best). The browser(s) can do all the heavy lifting there. Okay maybe I want to Shazam a song. Usually my own ears and brain work fine there but in a pinch I can remember a smattering of lyrics and google that shit. iCloud photo library? Photobucket, flickr, fotki (are they still around?) all work fine…if I gave a shit about that stuff. The novelty of pictures wore off a long, long time ago. And that same microSD card holds pictures too. Need more space? Carry a few extra cards, there about the size and weight of those cornflakes Erik doesn’t eat for breakfast.

                • Pseudonym

                  I know, it’s possible to avoid those services and in many cases they lag behind competitors. But Apple’s strategy is to get people using those services so they’re locked into buying iPhones. Incidentally, what kind of phone/plan do you have?

    • Matt McIrvin

      “Internet-based businesses” is a broad brush. The ones that are providing a tangible service for a fee, but use the Internet as a communications medium, can do very well. So can a few companies like Google that provide intangible but extremely useful services as a vehicle for advertising.

  • Brett

    There’s some extremely strong Network Effects at work with internet-based businesses, such that I’d expect most of them to fail and either be bought out or absorbed after bankruptcy by a handful of “tech giant” firms. Even the ones that can make money in their existing business model will probably be bought out, since the Tech Giants are all looking to diversify their revenue (Google, for all its profitability and size, is still heavily dependent on a particular source of advertising-revenue).

    I’m betting Spotify and Pandora don’t survive as independent businesses either. They’ll get bought out and offered as a free/cheap service Youtube style (possibly to help sell hardware).

    • sonamib

      My understanding is that Youtube is profitable, though. That’s not really the case with Spotify.

  • Lucifer

    What the fuck do you expect when you make deals with Record Label executives?

    • postmodulator

      On Reddit, someone would say here interject “Username is relevant.”

  • addicted44

    But the founders and investors got billions from your and my 401k when they went public.

    When the crash happens, we will be left holding the lemons.

    • Dennis Orphen

      A good point, one I have made before here, and was going to again above regarding VC funding. That’s your 401k money people. Keep contributing. The 1% needs you.

  • vic rattlehead

    Man I hope Spotify sticks around. There’s a lot of music on it that I own but isn’t convenient for me to carry around on my phone/is easier to stream. And then a bunch of stuff that I would probably never buy but is ok to listen to.

    Most notably. My old SST collection is long gone but Spotify has allowed me to rediscover it.

    • Dennis Orphen

      Listen to Tom Troccoli’s Dog’s version of Girl from North Country for me. Thanks.

    • I’d just like to add: Fuck Greg Ginn.

  • cwk

    Ugh seriously? I’m neither a libertarian nor a resident of Silicon Valley, though I do work in tech, and Prof. Loomis’s thoughts on my industry are about as insightful as my thoughts on labor history would be. The difference is I actually realize when I’m not knowledgeable on a topic and don’t try to opine on it.

    The reason Spotify struggles has nothing to do with it being an Internet business (plenty of which are either profitable or are forgoing profit-taking to invest in growth) and everything to do with the fact they’re trying to compete with larger companies that are using music streaming as a loss leader like Google, Apple, and Amazon.

    • Pseudonym

      Spotify and Twitter are not particularly representative of “internet companies” as a whole. Spotify also isn’t profitable because record companies can keep changing the licensing terms. Ad-based/freemium consumer internet also has a very different business model than enterprise or subscription services.

  • Heron

    I don’t think they’re meant to make money, and I think that’s what folks fundamentally misunderstand about internet “tech” companies.

    I mean, obvsl I don’t have any personal xp with the industry so I’m talking out of my ass here on the thin basis of articles I’ve read(and watching Silicon Valley :p), but it seems to me that the real focus revenue wise for tech companies isn’t goods and services but investment. I mean, 1 billion in revenue is nothing to sneeze at, but I get the impression the real revenue stream businesses like Spotify and Amazon are aiming at is to provide “safe” debtors for venture capitalists to loan to, so that their loans can then be securitized and derivatized by other wall street firms(hedge funds, ect) and sold in tranches. They’re like equipment supply companies; a middle-man cog in a larger financial and business machine that makes its actual profits from the usage fees(here disguised as investments) other companies pay for their service.

    Also, obviously their failures to turn net profits are, to a certain degree which varies company to company, Hollywood accounting. If they weren’t, Jeff Bezos wouldn’t be a billionaire, and neither would the CEOs of all those companies be millionaires. These companies are only broke on paper; never in a way that actually forces management to cut its pay-packages, or investors to lose money.

    There are counter examples like Yahoo and everything it buys, but I think that’s a product of corporate culture; they actually try to be a real company and think of what they’re doing as selling a service, rather than as providing a service as a front for the creation of investment vehicles.

    • Heron

      I think I explained that bit about equipment supply companies insufficiently. The point of those companies isn’t actually to lend out equipment, that’s just a side-effect of a larger cost-reduction strategy the companies using the equipment are pursuing. Owning the equipment means maintaining it, means paying taxes on it, means all sorts of stuff. If instead you’re merely borrowing it, you avoid many of those hassles. Same with Franchisers, I suppose. Companies that use “equipment supply companies”, even when the equipment they’re “renting” is something that sits in the buyer’s warehouses or work-sites year in year out, are really buying this arbitrage. Borrowing the equipment is just a consequence of wanting to do that.

      So I’m suggesting this is what venture capitalists and financial managers are using tech companies for and, while not all tech companies participate in this, providing the basis for similar secondary services is the point of many of the more famously “non-profitable” ones.

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