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The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
Each fiscal quarter, The Medium identifies three or four new trends that have momentum and seem poised to play out at a larger scale in 2023. These key trends pinpoint dynamic and constantly evolving developments in the media marketplace that are emerging from incremental shifts or fundamental changes. The bi-weekly mailings analyze these trends as developments emerge in real-time.
Read the three key trends The Medium will be focused on in Q4 2023. This essay covers "the less-discussed lens on how the demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers" and "In the shift from wholesale to retail models, there are many business models that delight consumers but no single, dominant one."
Author’s Note: My monthly Medium Shift opinion column —”Media Executives Covet Games, but Are Ill-Suited to Run Them”— went live yesterday. I wrote about how in 2023, gaming and Hollywood increasingly overlapped in the zeitgeist. Gen Alpha and Gen Z are increasingly spending as much time gaming as they are streaming. And no legacy media company is positioned to take advantage of serving those consumers across both marketplaces.
Spotify CEO Daniel Ek announced layoffs of 17% of its staff earlier this week (1,500 employees). The explanation was it had taken advantage of “lower-cost capital” in 2020 and 2021, to invest “significantly in team expansion, content enhancement, marketing, and new verticals”. The investments “ generally worked, contributing to Spotify’s increased output and the platform’s robust growth this past year”, but Spotify now finds itself in “a different environment”. Its cost structure “is still too big”, and the company is “more productive but less efficient.”
Spotify benefits from what I described in “Why So Many Streaming Services Are Struggling” as “The Distribution Moat”: The technological expertise behind the algorithms for personalized recommendations, the dynamic user interfaces and operational back-ends for content distribution over the internet. This moat is an advantage in video streaming, and an advantage in audio streaming, too. Spotify has captured over 30% of the streaming market share with 574 million users, including 226 million subscribers. But, unlike Netflix and Hulu with “Distribution Moats”, it is not profitable.
Notably, Netflix has made it out of the zero-interest-rate-policy (ZIRP) era with a profitable model, and Spotify has not. Spotify now finds itself in similar territory to legacy media companies with cost-cutting efforts and layoffs, cutting original content funding for critically acclaimed podcasts. As media distribution models sort themselves out in a post-ZIRP, higher interest rate world, the question posed by Spotify’s challenges and Netflix’s pivot to gaming is whether a “Distribution Moat” will still be an advantage heading into 2024 and beyond.
In 2023, the "'Distribution Moats" of Spotify and Netflix saw the economics of the supply of content shift towards commoditization and the demand for content is increasingly shaped by commoditization, too. Those trends both undermine and reinforce those moats.
Total words: 1,200
Total time reading: 5 minutes
Back in January, Netflix was facing lingering questions about its “Distribution Moat” after reporting its first decline in subscribers back in April 2022. An essay in the Financial Times then argued that Netflix’s “wobble” should “make clear to investors that ...