Here’s Why Netflix Has Decided Not To Get Into The Music Streaming Business

Netflix is now the biggest paid video streaming platform in the world with over 200 million paying subscribers. Amazon Prime Video and Disney Plus come after Netflix with respect to subscribers but the apart from Disney Plus, both Amazon and Apple who are in the movie streaming business both have music streaming platforms as well. But why is Netflix not in the music streaming business because you see they can take this fight to Apple and Amazon and thereby increase their market cap which stands at $262b. Netflix has stuck to its TV shows and movies and has indicated no interest in music streaming but one can only wonder why considering their size and subscriber base.

Let’s look at possible reasons the streaming giant has decided to stay away from music.

The first thing is that both pictures and music require licensing to obtain and then there’s royalties as they get played by subscribers. But the thing is this, it looks a little less complicated with motion pictures because you see one of the ways artists make money on music streaming sites is that they get paid some money per 1000 plays of their music. According to Soundcharts, Spotify paid the artists $0,0032 per stream, Apple Music got the average rate of $0,0056, Google Play Music landed a $0,0055 pay-out rate Deezer fell slightly lower at $0.00436 in 2020. The story is mostly different in the movie industry as actors get paid for filming time and only get residuals rarely when streaming sites pick up their shows from their production company. This residual some argue is mostly reserved for the  big names in the industry and this makes the movie streaming business more profitable in the long term. Original production costs are often high but with paying customers, the profit can be seen as time goes on. Netflix has a $13b budget for shows and movies in 2021 and that number could hit $19b by 2025 according to experts. Netflix raked in $25b in revenue in 2020 and with a revenue of $7.34b in the second quarter of 2021, the company could be on track to making a whopping $30b in revenue in 2021. In fact they announced early this year that they won’t be needing loans anymore to run the company as they reached profitability in a big milestone. From all of these, it looks as if Netflix just don’t want to complicate their business by investing in music streaming which is some work on its own. Sometimes focus is the key.

While looking at the subject of why Netflix is not in the music streaming business, I came across a very interesting analysis on Quora. Quora user Kosta had the following to say,

When Netflix started video streaming they used a very different model than the music streaming business. They could do this because there was no streaming model yet; Netflix basically invented it. They modeled it after the video rental business that they already had, where they paid a flat fee for a set amount of time and then were able to rent it as much as they wanted in that time period. Their streaming model worked the same way, with them paying a flat fee for a license for a set amount of time and then streaming it as many times as people wanted to with no additional fees.

The music industry worked very differently than the video one. There wasn’t really a music rental market at all; people bought music. The shift to digital sales of music continued to follow that model, with the iTunes Store model having people pay for each song. When music streaming started being coming, they based it on the radio model (Pandora) and the music sales model, where each stream was paid for. If they had gone with the Netflix model, a streaming service would have paid a flat fee for as many streams as people wanted, but the music industry was used to getting paid for each individual play and so they would never go for that.

So those two industries evolved very differently, because Netflix streaming evolved from the video rental model and music streaming evolved from music sales and radio models. This led to very different business models.

The music streaming model is essentially, as it currently stands, unprofitable. Pandora sort of makes money, but mainly by leveraging old radio contract law to internet streaming, but it’s dubious at best. Spotify still hasn’t made any money. Apple, Google, and Amazon make money streaming by including it in an ecosystem and each individual stream likely doesn’t make any money. The model is inherently unprofitable. There is no incentive for Netflix to get involved in that.

What’s more, Netflix has no experience with the music industry, which is a completely different animal than the movie and TV industry (as Apple learned when they tried to create their own TV service back in 2012). This would be something that would cost Netflix a lot of money and wouldn’t really add any value to the company. Are there people who already subscribe to Netflix that would be willing to pay a bit more to also stream music? Maybe, but most of those people probably already pay for music streaming and it’d be tough to lure them away. It’s likely just a lose lose situation.

It takes a long time to make money from music streaming, whereas in movies, the licensing bottlenecks are minimal. I think the ultimate one here is that Netflix couldn’t be bothered about music at this time and probably doesn’t want to compete with Apple and Amazon in that space. Apple on the other hand is still struggling to make a headway with its Apple TV with a subscription of about 38 million users.

Away from music though, Netflix wants to take on Apple and Amazon in another area and that is gaming. Gaming is closest to their current business model and could be interesting. Netflix confirmed it is integrating its movie streaming service with gaming. An expansion project that required Netflix to hire the Facebook finest game designer, Mike Verdu, to lead its gaming project. Aside from Facebook’s Oculus Headset AR/VR project, Mike has also designed games for Zynga and Electronic Art. It is also looking like they may not run a separate app I the App Store and Play Store to avoid the Apple – Epic scenario and now, this could be big and advantageous. They already have paying subscribers in the hundreds of millions, adding gaming for an extra token to what they already pay could see their platform jump significantly. This is also less complicated than the music streaming business as licensing works something closer to that of movies than music.

The music business is just too complicated with Spotify the biggest music streaming platform in the world just making a profit this year is a testament to that fact and even Netflix wants to run away from it.