Why Spotify's New Features Pose A Threat To Apple, But Not To Netflix
Spotify has achieved a lot since it came to America roughly four years ago. The company has successfully shifted from being the new guy that hoped to compete with Pandora Media Inc (NYSE: P) to the very thing that threatens Apple Inc. (NASDAQ: AAPL)'s future in music.
Apple was rumored to be working behind the scenes to quash Spotify's free streaming option before re-launching a fee-only version of Beats Music. Most analysts doubted the validity of the rumor.
"I think Apple's having more problems getting licensing and trying to copy the Spotify business model than they are trying to kill Spotify right now," Cody Willard, chairman of Scutify and Futr, told Benzinga. "Apple doesn't have the leverage in those negotiations with the major labels, as it's trying to create its own Spotify-like subscription service. It's just trying to get those deals done."
Meanwhile, Spotify has been working to bolster its service and make it more attractive to new users. The company announced that it will offer video clips from several networks (including ABC, NBC and Comedy Central), as well as a new feature that uses a phone's sensors to build a better workout playlist.
Additionally, the company is developing a new format of music that will change the composition/arrangement based on the user's pace. Spotify is also invading Starbucks.
"Apple is going to have to pull a rabbit out of its hat if it's gonna try to compete with Spotify," said Willard. "Spotify's product and app and ease of use is Apple-esque already. There's no one anywhere that can compete with what Spotify is doing right now -- Apple included. I don't have much faith in Apple's ability to fix Beats."
As far as Netflix, Inc. (NASDAQ: NFLX) is concerned, Willard said that Spotify is a music company and is "not gonna be a Netflix or a YouTube -- no way."
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Netflix Needn't Worry, But...
Rob Enderle, principal analyst at Enderle Group, said that there is a belief that if a company could combine the video quality of Netflix with an interactive music service, it could create a better experience.
"Maybe combining them into one and blend the experiences so that your likes in both places would result in better choices," Enderle told Benzinga. "Then you could have something more powerful. Plus you could aggregate the subscriptions to have better deals."
Thus far, Enderle said that the closest any service has come to achieving this is iTunes, which is more of a marketplace than an all-you-can-eat platform.
"The other company that's doing both is Amazon, but they haven't really blended the services," he added. "It's not really a blended experience, [but] it does look like this is the future." Enderle said that the end of the day, "The company that has both is probably the company that sustains."
At the very least, he thinks Spotify's new features are a good defensive maneuver against the competition.
"It makes it a much more credible alternative to iTunes," Enderle concluded. "This certainly strengthens their overall battle against Apple."
Better still, he said that if consumers catch on to the fact that Apple might be trying to quash the free Spotify service, it will push more users to Spotify.
The Simple Solution
Willard said Apple could have solved this dilemma by acquiring Spotify instead of Beats.
"That would have been a much better use of my shareholder money than wasting it on Beats," he said.
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
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