Spotify has to be in such a strategically frustrating spot right now.

If they integrate UGC (AI-generated music) from subscribers natively, they'll likely get a revolt from the artists + labels.

So, they're stuck waiting for an AI music platform to start disrupting them, at which point they'll be forced to acquire it at an exorbitant premium once the market/zeitgeist attenuates to this type of content. By the time that it's possible (or even allowable) for Spotify to enter that race, it will (definitionally) be won.

In a perfect world, it seems logical to me that Spotify would leverage its huge distribution advantage and simply empower its deep user base to become creators. A kind of Roblox judo move that keeps the created content on their platform and embeds additional monetization opportunities (tokens for generation, improved sound design, new subscription tier).

The classic 'creative destruction', attempting to cannibalize one's core business in order to attack adjacencies and shimmy up the next j-curve.

Unfortunately, this seems to be impossible (or incredibly challenging, to say the least). Attempting this kind of product expansion would likely be armageddon for its core business as the company was threatened by myriad lawsuits, artist desertions, and copyright infringements (how was the AI trained? on what songs? etc.). It would slaughter the cash cow in a recursive fashion, destroying the viability of the AI product launch at the same time as the user-base's original value proposition collapsed.

I think that Spoitfy is stuck over a barrel. The legal inertia from their agreements with record labels (supplier power - Porter's 5 Forces) acts as a hard stop inhibiting Spotify from taking the necessary steps in order to truly leverage the AI revolution (at this point).

And we've seen this with the platform's lukewarm attempts to interweave AI so far:

• AI DJ: a marginal improvement over the legacy Radio feature
• AI Thumbnail Generation for Playlists: a nice to have, but minimally improving an audio-centric platform
• Generative Playlists: text-to-playlist (type mood, theme, etc.). Seems to overindex on your likes/current playlists. Eh.

But perhaps this is a bit myopic, disregarding:

• AI generated podcasts
• Artists leveraging AI in creation, production, song-writing, audio-engineering, etc.
• AI song generation platforms (Suno, et al)

Maybe AI in the music stack simply sits elsewhere than the DSPs, with value leaking from their walled gardens.

Then-again, they may simply go with a Second Mover strategy: sidestep the legal landmines and let some disruptive player navigate the headaches to establish a market, then either buy or build into it in classic Apple fashion.

This core business question could certainly be motivating (in part) their emphasis on introducing video as well as their rolling up of other audio content, namely podcasts and audiobooks which drive significantly higher margins.

All said, I'm a huge fan of the platform and optimistic for the future, and excited to see how larger brains than mine grapple with this conundrum in real time.

// 🍋

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