BraveSirZaphod , 9 months ago

It's not at all a coincidence that this happened at the same time interest rates were rock bottom. Lyft has never had a profitable quarter, nor has Spotify. I think Uber has had a few, but they've also heavily struggled. Netflix does well, but no other video streaming service has been profitable. Disney+ has already started to dial back on production as a way to cut costs. Reddit has been around for a long time and isn't profitable.

Capitalism isn't actually as easy as a lot of people think it is. To make sense of this, you have to realize that in extremely low interest environment like we had, the primary business objective is not profit, but rather, growth. Especially in the tech world, you're trying to sell a story to investors that you're creating an entirely new market that you're poised to absolutely dominate, and that if they simply give you money now, rather than getting some profit in the short-term, they're going to wind up owning a lot of extremely valuable shares in the next Microsoft, or Netflix, or whatever. Debt is very cheap, and so tapping into that stream of investor money doesn't cost you much at all, and you can build some cool new thing that people like a lot. The problem comes when the chickens finally come home to roost, and the investors expect to get something for their money. That is currently happening, now that debt is much more expensive and investors are much less willing to take big risks, which means that those services that were living off of investment money now need to either establish that they can actually make the numbers work or perish.

Spotify, for instance, is sitting on nearly two billion dollars of debt. Now, they're not in the worst position, because for better or for worse, the labels need some streaming services because that's simply how people consume music today, so the labels will have to keep it alive on way or another. But it doesn't change the fact that the numbers need to add up eventually. Reviewing Spotify's sheets, they're not in a terrible position though. They lost $453 million in 2022, but they also spent $1.48 billion on research and development. They've been doing a lot of development on podcasts and ML-based recommendations, which is probably where a lot of that went, and the kinds of engineers that work at Spotify don't come very cheap at all.

Now, you'd probably say that they could simply not do that and content themselves with being a perfectly adequate music streaming service, but if they announce that they're doing that, it opens a huge opportunity for a competitor to go guns a' blazing to try to develop a bunch of flashy new features to steal customers. Additionally, the labels, and indeed musicians as well, don't want music to be cheap. They want it to be valuable and so desirable that people are willing to pay a decent amount for it. Musicians aren't exactly selfless saints either; no one really is. Plenty of artists, of all genres, could easily make their music completely free to access, play free concerts, and personally cover all associated costs with doing that. But they don't, because at the end of the day, everyone wants a slice of the pie.