Analyst reads Spotify’s SEC filing. Has idea for Apple.

What if Apple had a free, ad-supported option like Spotify’s?

From a note to clients by RBC’s Amit Daryanani that landed in my inbox Sunday:

While paid subscribers accounted for 90% of Spotify’s total revenue, ad-supported user base of ~159M users serves the important function of acting as a ‘funnel’ that accounts for 60% + of Spotify’s paid subscribers since 2014.

We wonder if an ad-supported version of Apple Music represents an untapped opportunity for Apple. We also note that traditional US radio market is ~$14B in size, which is not insignificant. Thirdly, the long tail of users from ad-supported base provide substantial data about content consumption and user behavior. It is worth noting that Spotify’s data set of 200PB is significantly greater than that of Netflix. Arguably, similar amount of data available to AAPL would carry even higher monetizing potential (high disposable income of iOS users). Finally, an ad-supported version might increase penetration into markets outside the US, which for Spotify comprised 68% of total users.

My take: If Spotify’s business model is so great, why is it losing money?

Below: Market shares as of mid 2017.

Click to enlarge.


  1. David Emery said:
    Which part of “ad-supported” does Amit think is “good for consumers?” Ad-supported would probably also require data mining of customers, which Apple has made it clear is against its principles.

    But to an ANALyst, anything that looks like it might make a buck, no matter how much it would damage the brand, looks like A Good Idea.

    March 4, 2018
  2. John Kirk said:
    What if the Analyst – who has no idea how Apple’s business model works – stopped pretending he was qualified to give Apple advice, instead?

    Apple Music isn’t a stand alone product. It serves the Apple ecosystem. Apple doesn’t WANT customers on ad supported services. The goal is to make the overall ecosystem more attractive, not provide users with the horrible user experience that comes part and parcel with ad supported services.

    March 4, 2018

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