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Stock of the Week: Spotify

Content remains king

Andrew Willis 5 July, 2021 | 8:00AM
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Andrew Willis: Remember when we used to have to download individual songs? Remember Napster? Fast forward to today, however, and everything old is new again. What happened?

Well, things started to change when Spotify appeared, almost as an olive branch from the music industry. ‘Here, pay us ten dollars a month instead of a dollar a song’…Good deal right? Yes, but not so much for Spotify investors.

While initial record label deals were good for Spotify, it’s going to have a hard time growing. Senior equity analyst Ali Mogharabi says that each time the company looks to grow its audience, it’s at the mercy of the record labels and the price they set. 80% of the licensing is controlled the ‘Big 3’: Universal, Sony and Warner.

Spotify’s made a deal that may limit its future operating leverage and profitability. All while facing stiff competition from Amazon, Apple and Google. But Spotify is still ahead of the pack, and if it pulls a Netflix with its podcasts – truly owning content - it could sing a different tune.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Spotify Technology SA89.00 USD3.13Rating

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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