Spotify’s ‘Duo’ tariff gives a whiff of what’s to come

Sharing accounts might be the norm in the world of content streaming platforms, but Spotify’s new ‘Duo’ tariff might be a sign of changing attitudes.

In many homes throughout the world, streaming platforms are shared. This is a truth which is generally accepted as the norm, but it does technically violate the terms and conditions of the service and does impact the experience for the user. For example, if users are sharing a premium Spotify account, it can only be used on one device at any point.

Duo seemingly addresses this point and does so at a price point which is a lot more palatable. For €12.49 a month, users can link two accounts to the same bill, offering two ‘tailored’ experiences but with a bundling discount and a single point of payment.

Spotify has already experienced some joy with the idea of bundling having launched the family plan. Here, six profiles can be linked into the same bill for €14.99 a month. Increasing premium subscriptions being reported during earnings calls suggest this is perhaps having a positive impact on the business.

Spotify

Netflix is another streaming platform where users may be taking advantage of how easy it is to connect and share passwords. Although Netflix does allow up to five profiles on a single account, there is little preventing these profiles from being shared outside the home. Netflix has not seemingly made a massive fuss of this so far, though we suspect this was not the desired outcome.

Ultimately these are commercial entities seeking profit. The perfect scenario for these organizations will be for every user having their own subscription, though the practice of password sharing contradicts this; why would you spend £9.99 a month when you can simply log into Mum and Dad’s account?

While there is still room for subscription growth, this is not necessarily a massive issue for the OTTs, but there will come a day where they will have to start thinking about how to tackle the issue. Considering how quickly the world is adopting the new content status quo of entertainment on demand, it won’t be too long before that glass ceiling is hit.

Spotify’s approach is an excellent way to tackle the issue of password sharing. At €12.49, Spotify will not be hording in a tsunami of profits, but it will be gaining more revenue in effectively the same position. There are two users sharing an account, paying a single bill; the platform is being used by two people. With Duo, both users are still using the service, but Spotify is collecting more revenue. It’s as close as you can get to free money.

How the other OTTs plan on tackling this issue remains to be seen, though we suspect they almost certainly will. Content is becoming an increasingly expensive habit to fuel, and at some point the companies will have to be true to their terms and conditions.

Apple issues weak response to Spotify’s claims of discrimination

Apple has presented its side of the dispute with Spotify, claiming it is treating the latter the same as other apps and it is reasonable to charge 30% of premium payment to apps.

Shortly after Spotify filed a claim at the EU against Apple for being discriminated by the latter’s App Store rules and practices, Apple released a statement to deny these claims and throw the accusations back at Spotify.

Apple argued for the 30% charge of premium paid to apps on App Store platform with a few justifications. “Apple connects Spotify to our users. We provide the platform by which users download and update their app. We share critical software development tools to support Spotify’s app building. And we built a secure payment system — no small undertaking — which allows users to have faith in in-app transactions,” the statement said. Apple also hastened to add that Spotify has left out policy that the revenue share will drop to 15% from the second year on.

On Spotify’s argument that Apple has restricted payment methods to Apple’s own payment system only, Apple retorted that it demands all “digital goods and services that are purchased inside the app using our secure in-app purchase system”.

There are a few layers in the reading of the attrition when each side is only talking its own side’s truth, but there are also bigger questions related to the whole digital economy. There are minor inconsistencies in Apple’s statement, for example it claimed that Spotify has made “substantial revenue that they draw from the App Store’s customers”, only to contradict a few lines below by playing down the App Store’s significance by saying “only a tiny fraction of their subscriptions fall (sic.) under Apple’s revenue-sharing model.” And there is no need for Apple to use the dubious accusation that Spotify is suing music creators. They (Spotify, Google, Pandora, Amazon) are not. They are appealing to overturn a court decision to increase royalty payment by 44%.

There is as much left unsaid as said. For example, Apple failed to address Spotify’s concern that Apple is both operating a platform and distributing its own competing products, in this case Apple Music. This was a point brought up in a conversation The Verge had with Sen. Elizabeth Warren, who did not include in her first list of companies to “break up”. “It’s got to be one or the other,” Warren told The Verge referring to Apple. “Either they run the platform or they play in the store. They don’t get to do both at the same time.” This resonates with Spotify’s accusation that Apple is being both the referee and a player.

It also does not give out the reason why Spotify, or any apps, should not have the option to handle payments within the app with equally safe payment system (e.g. credit cards).

Then there is the broader question whether app stores should be allowed to collect a commission fee for apps distributed on its platform. Technically Apple, and other applications stores like Google’s Play Store, could argue that they are a distribution channel and a retail outlet. Like other channels and retailers, they must charge a fee to sell the products. This side of the business would not be so significant for Apple earlier, as it was mainly using the app ecosystem to sell, and lock consumers in, iPhones. It is getting more meaning for the company now that the iPhone sales are slowing down while “Services” has become a meaningful part of the business. That is also a key reason why both Apple and Google are actively encouraging apps to move to subscription model to generate recurring income for the platforms.

But there has never been any justification why the fee should be as high as 30%, and Apple and Google have been well synchronised with their charge level (as well as dropping the fee from second year onward to 15%). This has become a significant additional cost for the app developers. Some with deeper pockets could absorb the cost and keep the retail price similar to other platforms (e.g. The Economist magazine). Those businesses operating on low margin or on a loss have to move the additional cost to users who opt to pay for the premium inside the app (e.g. Spotify). Other businesses simply choose to disable the option to upgrade to premium inside their iOS app to avoid the fee (e.g. the Financial Times newspaper).

Apple used Spotify’s partnerships with carriers as a supporting argument for the charge, saying “a significant portion of Spotify’s customers come through partnerships with mobile carriers. (This) requires Spotify to pay a similar distribution fee to retailers and carriers.” This may or may not true as each carrier deal with OTT services is different. Even if this is accurate, mobile carriers most likely are following the Apple’s and Google’s benchmark rather than the other way round.

Spotify accuses Apple of discriminating against it in the App Store

Music streaming service Spotify has declared war on Apple over alleged discriminatory treatment of its app and commercial terms.

In a blog post CEO Daniel Ek announced Spotify has filed a complaint against Apple with the European Commission. He claims “Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience – essentially acting as both a player and referee to deliberately disadvantage other app developers.”

The main issue seems to be the commercial terms Apple offers Spotify, specifically taking a cut of the fees people pay for its premium services. While this is Apple’s prerogative, that behaviour is complicated by the fact that Apple operates its own competing streaming service, Apple Music, and allegedly punishes Spotify if it attempts to use an alternative payment system.

“We aren’t seeking special treatment,” wrote Ek. “We simply want the same treatment as numerous other apps on the App Store, like Uber or Deliveroo, who aren’t subject to the Apple tax and therefore don’t have the same restrictions. What we are asking for is the following:

  • First, apps should be able to compete fairly on the merits, and not based on who owns the App Store. We should all be subject to the same fair set of rules and restrictions—including Apple Music.
  • Second, consumers should have a real choice of payment systems, and not be “locked in” or forced to use systems with discriminatory tariffs such as Apple’s.
  • Finally, app stores should not be allowed to control the communications between services and users, including placing unfair restrictions on marketing and promotions that benefit consumers.”

Spotify’s timing is pretty good, since regulatory and political sentiment is quite hostile to US tech giants at the moment and Apple is expected to launch a TV streaming service later this month. Spotify has created an emotively-named website – timetoplayfair.com – to further detail its case. Apple will presumably insist rules are rules, but the case against it seems reasonably strong it’s quite possible it y eventually back down on this one.

 

Internet giants approach the censorship point of no return

The apparently coordinated banning of conspiracy site InfoWars has brought to a head the role of social media companies in censoring public discussion.

InfoWars is headed by Alex Jones, a polemicist who likes to shout his often highly questionable views and theories at the camera. He has a large following and frequently says things that are offensive to many but, to date, he seems to have been accepted at part of the public debate mix, albeit a relatively extreme one.

However last week YouTube, Facebook, Apple and Spotify all took down content and channels from InfoWars on the grounds that it had broken their rules. This move was celebrated by many opponents of InfoWars but also called into question the grounds for taking the action and whether those rules are being applied equally to all.

Unsurprisingly Jones thinks it’s a conspiracy, but a number of other commentators are asking whether social media censorship rules are more strict for right leaning commentators than those on the left. Conservative publication Breitbart noted that groups such as Antifa – a militant far-left organisation – seems to escape unpunished for public statements that are at least as questionable.

And then there’s the matter of free speech in general, and more specifically censorship. Most people accept there has to be some limit on what can be said in public, such as shouting “fire” in a crowded theatre or explicitly calling for a crime to be committed, and the useful debate focuses on where that limit should be, as implemented by law.

But social media platforms are private companies and are thus free to implement their own policies independent of laws and apparent public will. For some time they have been censoring speech that would be allowed by law, which is their prerogative, but since most Western public discussion now takes place via this oligopoly of platforms, apparent coordinated action by them becomes a matter of public concern.

This concern is amplified when there is a perception of political bias behind the censorship decisions. Silicon Valley is generally considered to tend very much to the left of the political spectrum and social media seems to be especially twitchy about commentary deemed to be from the ‘far right’.

As the location for the most heated public debate, Twitter is the social media platform at the front line of the censorship issue. Intriguingly it has so far declined to ban InfoWars, despite evidence that it has violated Twitter rules. Of all the platforms Twitter seems to be having the most nuanced and sophisticated internal discussion on censorship, as evidenced by this NYT piece and the tweet below from CEO Jack Dorsey.

On top of the ethical and philosophical questions raised by the perception of selective censorship by social media companies there are also commercial ones. When YouTube started demonetizing videos it was in response to complaints from advertisers about having their brands placed alongside content ‘incompatible with their values’ or something like that. But there is a real danger, thanks to phenomena like the Streisand effect, that high profile censorship such as this will permanently drive traffic away from their platforms and create the demand for fresh competitors.

Sooner or later the big internet companies surely have to explicitly detail the cut off point for what speech they consider ‘unacceptable’ and clearly demonstrate they are implementing them even-handedly, or face an increasing backlash. It seems appropriate to conclude by referring the discussion to a couple of prominent YouTubers who, while no fans of InfoWars, are very concerned about selective censorship.

 

Tencent is aiming to do a Spotify with its entertainment and music business

The China based internet company Tencent, listed on the HKSE, is planning to spin off its music and entertainment subsidiary and list it separately on an exchange in the US.

The chairman of Tencent, Ma Huateng, also known as Pony Ma, made the announcement on Sunday 8 July, one day before Xiaomi’s trading started on the HKSE. Despite the initial price was set at the bottom end of the estimated range, Xiaomi’s share price still closed the day 1.2 percent lower than its opening price, having recovered from a heavy loss of close to 6 percent earlier in the day.

In an interesting twist, Xiaomi’s CEO Lei Jun felt the share price was depressed by the on-going trade disputes between the US and China, when he spoke to the CNN. Meanwhile, the company’s President and Co-Founder Lin Bin told CNBC that the trade war is not a major concern “as Xiaomi had not done much business in the U.S.”

Although Xiaomi is a profitable business, its thin margin (capped at 5 percent by its owner on its hardware business, which accounted for roughly 90 percent of the whole business) made investors deem the price too high.

In comparison, the global leader in streaming music, Spotify, launched its IPO in April this year on NYSE. The price rose by 13 percent on its opening day, rising to $149.01 from the initial offering of $132, despite Spotify being a loss-making company. It was traded at $175.70 when the market closed on Friday 6 July.

We can only wait for Tencent to disclose the profit and loss of its Music and Entertainment group in the run-up to the IPO, but the group, which gets all its business from China, has reported healthy growths. Its paid subscriptions, mainly for video and music, grew by 24 percent to 147 million during the first quarter of 2018, and its total video revenues grew by 85 percent year on year.

The limited appetite on the Hong Kong market, especially when the channel to China-based investors, the instrument called CDR, is hard to come by, in contrast to the enthusiasm to invest in the future on the US market, may have helped tilt the decision by the Tencent board to go for the US stock market.

AI audio is getting scary

Google is trying to make machines sound more human and that’s freaking people out.

Earlier this week Google demonstrated a cool new technology it’s working on called Duplex that is essentially an AI-powered automated voice system designed to enable more ‘natural’ conversations between machines and people. You can see the live demo below and click here for a bunch of audio clips showing how far along it is.

While there is clearly still a fair bit of fine tuning to be done, the inclusion of conversational furniture such as umms and ahs has unsettled some commentators, mainly on the grounds that it’s becoming hard to know if you’re speaking to a real person or not. While the whole point seems to be to make interacting with machines more smooth and intuitive, it seems we’ve hit a cognitive wall.

‘Google Grapples With ‘Horrifying’ Reaction to Uncanny AI Tech’, blurted Bloomberg. ‘Could Google’s creepy new AI push us to a tipping point?’ wailed the Washington Post. ‘Google Assistant’s new ability to call people creates some serious ethical issues’, moaned Mashable. ‘Google Should Have Thought About Duplex’s Ethical Issues Before Showing It Off’, fulminated Fortune. And then there’s this Twitter thread from a New York Times writer.

Hyperbolic headline-writing aside these are all good points. Google’s grand unveiling coincides with the broadcast of the second season of Westworld, a drama in which androids indistinguishable from humans rebel and decide to start calling the shots. And, of course, talk of AI (at least from this correspondent) is only ever one step away from references to The Terminator and The Matrix.

The above reactions to the demonstration of Duplex have forced Google to state that such interactions will always make it clear when you’re talking to a machine but it’s not yet clear exactly how. More significant, however, has been this timely reminder that not everyone embraces technological advancement as unconditionally as Silicon Valley and that AI seems to have already reached a level of sophistication that is ringing alarm bells.

And it’s not like Duplex is an isolated example. The NYT reports on findings that it’s possible to embed suggestions into recordings of music or spoken word such that smart speakers receive them as commands. The extra scary bit is that it’s possible to make these commands undetectable to regular punters.

Meanwhile Spotify has announced a new ‘Hate Content and Hateful Conduct Public Policy’, that is enforced by an automated monitoring tool called Spotify AudioWatch. This bit of AI is able to sift the lyrics of songs on the platform for stuff that goes against Spotify’s new policy, which you can read here.

On one hand we can all agree that horridness is bad and something needs to be done about it, on the other this is yet another example of algorithmic censorship. According to Billboard this facility is also being used to erase from history any artists that may have sung or rapped something horrid in the past too.

These various examples of how AI is being used to automate, manipulate and censor audio are quite rightly ringing alarm bells. Greater automation seems to be inevitable but it’s perfectly reasonable to question whether or not you want to live in a world where machines increasingly decide what’s in your best interests.

 

Spotify looks east with Tencent umbilicus

Music streaming service Spotify has made a clear statement of geographical intent by entering into an equity swap with Chinese internet giant Tencent.

Specifically Spotify is doing business with Tencent Music Entertainment and in its announcement it referred to the two companies as ‘the two most popular music streaming platforms in the world.’ TME runs QQMusic and KuGou, which apparently have a combined monthly user base of 450 million users. The last time Spotify revealed its user numbers they stood at 140 million, with 60 million subscribers, but it has global reach.

The companies have announced they will acquire shares in each other but the only details offered is that they will amount to minority stakes. So somewhere between 0.000000000001% and 49.9999999999999%. Tencent is also going to buy another tranche of Spotify shares just because it can.

“Spotify and Tencent Music Entertainment see significant opportunities in the global music streaming market for all our users, artists, music and business partners,” said Daniel Ek, CEO and Founder of Spotify. “This transaction will allow both companies to benefit from the global growth of music streaming.”

“We are excited to embark on this partnership with the largest music streaming platform in the world,” said Cussion Pang, CEO of TME. “TME and Spotify will work together to explore collaboration opportunities, with a common objective to foster a vibrant music ecosystem that benefits users, artists and content owners.”

“We are delighted to facilitate this strategic collaboration between the two largest digital music platforms in the world,” said Martin Lau, Tencent President. “Both of us share the same commitment to bringing music and superior entertainment experiences to music lovers, and to expanding the global digital music market for artists and content partners.”

Spotify is expected to have its IPO next year and being so intimately joined to such a big, cash rich company will probably reassure prospective investors about its long-term future. Furthermore, since that future will chiefly involve direct competition with US tech giants such as Apple and Google, this marks an intriguing moment in the balance of economic power between east and west.