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What's crazy is that Apple DOES pay more than Spotify, but even on Apple you'd still have to listen to your own artists for over 100 hours in a single month to give them your full $10 fee in streaming royalties. Otherwise you are subsidizing the listening of other users.

That was based on songs being 4 minutes long and some figures from June 2017. Spotify pays .0038 per stream. Apple pays .0064. Tidal pays nearly double at .0110.

Also, my math may be totally wrong... these numbers are so small that it hurts my brain.

The disparity between what Apple pays per stream and what Spotify pays per stream (on average) is caused by:

(1) Spotify having an ad-supported tier which generates far less revenue and, possibly

(2) Spotify listeners streaming more songs than Apple Music listeners do (on average and relative to how much revenue they generate).

The average per-stream rate that they pay isn't a set figure. A portion of their (subscription or ad) revenue effectively goes into a pool to pay for licensing rights (or different pools for different kinds of licensing rights). That pool is divided up based on how many streams there are. So, for a given number of subscribers (who generate a given amount of revenue), the per-stream payout depends on how many songs they streamed. Both services - Spotify and Apple Music - pay around the same portion of their revenues to rights holders. In other words, the music industry earns about the same amount from an Apple Music subscriber paying $10 a month as it does from a Spotify subscriber paying $10 per month.

Spotify's ad-supported service generates far less revenue per listener, so rights holders receive far less money from it. That brings Spotify's average per-stream payout down.
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If I understand correctly... Amazon didn't post a profit in the early years because they spent every dime they made on expanding their business. They made a profit... but they invested that extra money back into themselves. That was a choice they made... and it worked out for them.

Spotify doesn't make a profit at all because it costs them MORE to acquire the music than the money they get from customers. They don't have a choice. There is no "extra" money to play with.

For instance... if Spotify gets $3.1 billion in revenue... it actually costs them $3.5 billion to pay the record labels for royalties and to run their company. (a $400 million loss)

And those losses have gotten bigger every year... despite their growing userbase.

In short... Spotify's business model is broken. Would you agree?

There is no opportunity for Spotify to make a profit when their costs exceed their revenue. And simply adding more users hasn't helped in the 9 years they've been around.

While Spotify is now up to 60 million paying customers... they also now have 80 million free customers. That's a big part of the problem.

If Spotify got rid of the free (freeloading) tier... they might be able to make a profit. Who knows.

Or... maybe streaming music isn't a profitable business at all because of the insane royalty costs.

Apple, Google, Amazon and Microsoft could afford to lose money on streaming music because they have other profitable businesses.

But Spotify's business is streaming music. They don't have anything else to fall back on.

Spotify's cost of revenues - which includes not only royalties, but distribution, payment processing, customer services and other costs as well - is less than the revenues it generates. That's true even including its ad-supported tier, for which the cost of revenues does exceed revenues. For 2016, Spotify's gross margin (its revenues minus that cost of revenues) was about 15%. Considering just the paid tier, it was about 18%.

There are headwinds for Spotify. But the business model can work and there are actually some pretty advantageous (and unusual) aspects of it. Notably, its primary suppliers are willing to price their products (collectively) as a portion of the revenues generated from those products. They have agreed (for the most part, though Spotify does some deals that diverge from this model somewhat) not to be paid a certain amount per unit, but rather to be paid certain percentages of what Spotify brings in - regardless of how many times their songs are streamed.

When it comes to profitability, the main things this model needs are (1) scale and (2) a reduced need to spend money creating or maintaining that scale. Spotify's current situation is similar to what you describe with regard to Amazon. It is spending a lot of money trying to grow its business. It now has great scale - probably enough that it could be profitable now (or very soon) if it chose to. But it chooses to continue to spend a lot of money trying to build its customer base. The music streaming market is just now - over the last couple of years - experiencing its boom. Spotify understands that this is the important time to be focused on market share rather than profits. A lot of people are just now trying streaming services and will be deciding, among other things, which are their go-to services. Pulling (fairly new streaming) customers into your service now will be easier than pulling customers away from other services will be later.

So Spotify is spending a lot of money on, among other things, sales and marketing. (To be clear, a portion of that which is spent on sales and marketing represents royalties - it's the cost of providing free or significantly-reduced price trials. But those amounts still aren't enough to make Spotify's gross margins negative.) It's also spending money trying to enhance its services. And it has pretty significant financing costs.

But the key thing is that, on the whole, it does make money on incremental business.

A note about the free-tier: For 2016, its cost of revenues exceeded its revenues by around $40 million. It does cost Spotify money, but Spotify apparently believes it is worth offering the free-tier as a conduit for bringing people into its paid-tier.
 
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One question I have-

If I play say "I Am The Walrus" by The Beatles which is 4mins 35sec at what point is the royalty tagged is it after 1sec or after playing the track in its entirety?

thanks
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The disparity between what Apple pays per stream and what Spotify pays per stream (on average) is caused by:

(1) Spotify having an ad-supported tier which generates far less revenue and, possibly

(2) Spotify listeners streaming more songs than Apple Music listeners do (on average and relative to how much revenue they generate).

The average per-stream rate that they pay isn't a set figure. A portion of their (subscription or ad) revenue effectively goes into a pool to pay for licensing rights (or different pools for different kinds of licensing rights). That pool is divided up based on how many streams there are. So, for a given number of subscribers (who generate a given amount of revenue), the per-stream payout depends on how many songs they streamed. Both services - Spotify and Apple Music - pay around the same portion of their revenues to rights holders. In other words, the music industry earns about the same amount from an Apple Music subscriber paying $10 a month as it does from a Spotify subscriber paying $10 per month.

Spotify's ad-supported service generates far less revenue per listener, so rights holders receive far less money from it. That brings Spotify's average per-stream payout down.
[doublepost=1501584489][/doublepost]

Spotify's cost of revenues - which includes not only royalties, but distribution, payment processing, customer services and other costs as well - is less than the revenues it generates. That's true even including its ad-supported tier, for which the cost of revenues does exceed revenues. For 2016, Spotify's gross margin (its revenues minus that cost of revenues) was about 15%. Considering just the paid tier, it was about 18%.

There are headwinds for Spotify. But the business model can work and there are actually some pretty advantageous (and unusual) aspects of it. Notably, its primary suppliers are willing to price their products (collectively) as a portion of the revenues generated from those products. They have agreed (for the most part, though Spotify does some deals that diverge from this model somewhat) not to be paid a certain amount per unit, but rather to be paid certain percentages of what Spotify brings in - regardless of how many times their songs are streamed.

When it comes to profitability, the main things this model needs are (1) scale and (2) a reduced need to spend money creating or maintaining that scale. Spotify's current situation is similar to what you describe with regard to Amazon. It is spending a lot of money trying to grow its business. It now has great scale - probably enough that it could be profitable now (or very soon) if it chose to. But it chooses to continue to spend a lot of money trying to build its customer base. The music streaming market is just now - over the last couple of years - experiencing its boom. Spotify understands that this is the important time to be focused on market share rather than profits. A lot of people are just now trying streaming services and will be deciding, among other things, which are their go-to services. Pulling (fairly new streaming) customers into your service now will be easier than pulling customers away from other services will be later.

So Spotify is spending a lot of money on, among other things, sales and marketing. (To be clear, a portion of that which is spent on sales and marketing represents royalties - it's the cost of providing free or significantly-reduced price trials. But those amounts still aren't enough to make Spotify's gross margins negative.) It's also spending money trying to enhance its services. And it has pretty significant financing costs.

But the key thing is that, on the whole, it does make money on incremental business.

A note about the free-tier: For 2016, its cost of revenues exceeded its revenues by around $40 million. It does cost Spotify money, but Spotify apparently believes it is worth offering the free-tier as conduit for bringing people into its paid-tier.

Excellent post.
 
For those wondering how many of the reported paid subscribers are paying the regular price for Spotify's service...

We can get some sense of the situation by looking at how much revenue Spotify generates from its paid service. For 2016, it reported €2.64 billion in revenue from that service. At current conversion rates (which are a little higher than they were throughout 2016), that's around $3.1 billion. Spotify also reported that paid subscribers increased from 28 million to 48 million in 2016. So, on average... around 38 million, maybe a little higher or a little lower?

$3 billion divided by 38 million is around $80 or around $6.50 per month.

There are other things going on in those numbers, so we can't take that as precise. But it gives us some sense of the situation.

Spotify does deals with third parties (e.g., wireless carriers) where they get subscriptions at reduced rates. So I would have expected that number to be meaningfully less than $10 even without considering the near-free trials that Spotify offers.
 
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Listened to (and paid for both). And, hands down, Spotify's music discovery and high quality trump Apple Music. Sorry. (And I love Apple products, I just bought a MacBook Pro and AirPods, but I have to call it as I see it). Apple is not great at everything.
 
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As it prepares to go public, Spotify has reached 60 million paid subscribers, reports TechCrunch. The 60 million mark comes nearly five months after the company announced its 50 million paid subscriber milestone in March.

When adding in customers who listen to the free ad-supported tier, Spotify has more than 140 million subscribers worldwide. Comparatively, Apple Music now boasts 27 million paying subscribers, a number Apple shared at its Worldwide Developers Conference in June.

spotify-logo-800x285.jpg

Since its 2015 debut, Apple Music has been growing steadily by luring customers with exclusive album releases, concerts, and original television programming, but it does not offer a free tier like Spotify. Apple Music subscriptions start at $9.99 per month after a three-month free trial.

Spotify paid subscriptions are also priced at $9.99 per month, and in 2016, Spotify's revenue grew over 50 percent to $3.3 billion.

In the near future, Spotify plans to go public through a direct listing, forgoing the traditional initial public offering and making existing Spotify shares available to the public. With this method, likened to an elopement instead of a full-on wedding, Spotify avoids the fanfare of an IPO and does not have to hire an underwriter. Spotify is expected to initiate its direct listing in 2018.

Article Link: Spotify Hits 60 Million Paid Subscribers Ahead of Going Public
[doublepost=1501592886][/doublepost]Spotify is a failed model. "60M" paid subscribers NOT, Likely less than 18M. Projected numbers mixed with cancelled subscribers adds up to fraud. Weird that a company that lost 400M in 2016 is going public.
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For those wondering how many of the reported paid subscribers are paying the regular price for Spotify's service...

We can get some sense of the situation by looking at how much revenue Spotify generates from its paid service. For 2016, it reported €2.64 billion in revenue from that service. At current conversion rates (which are a little higher than they were throughout 2016), that's around $3.1 billion. Spotify also reported that paid subscribers increased from 28 million to 48 million in 2016. So, on average... around 38 million, maybe a little higher or a little lower?

$3 billion divided by 38 million is around $80 or around $6.50 per month.

There are other things going on in those numbers, so we can't take that as precise. But it gives us some sense of the situation.

Spotify does deals with third parties (e.g., wireless carriers) where they get subscriptions at reduced rates. So I would have expected that number to be meaningfully less than $10 even without considering the near-free trials that Spotify offers.

Spotify model is popular for its free listening option (ads) which over 96% of its "clients" listen to. Problem is only the 200 big artists get paid. The rest are screwed. And of course, the owners of music catalogues (Sony etc) make all the money , billion$. Buh bye music biz
 
With that many subs, perhaps they can start paying artists properly at last, instead of just themselves.
Without the artists, they would be nothing..
 
Spotify has seen explosive growth since Apple Music launched, which is counterintuitive unless Spotify also had a service or product revamp (they didn't).
I think you are confusing cause and effect. Apple launched Apple Music because the subscription market had started booming, so they could no longer afford to ignore it.
If you do a little research amongst financial reporters (BI is not a great source for financial reporting), this explosive growth got a lot of people to pay attention to the underlying figures. The short answer is that nobody in the financial community trusts Spotify's paid subscriber numbers anymore.
I'm sure you have some sources? I doubt very much that Spotify misreports these crucial numbers. The music industry knows exactly how many active users and subscribers they have.
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Here lies the problem in business you can't rely 100% on someone else.
Almost the entire desktop software industry relies on Microsoft. What's the problem?
If Amazon, Google or Apple pull the plug on Spotify
But they aren't, because (1) they also benefit from a hugely popular service like Spotify and (2) they'd get in trouble with government authorities for anti-competitive behavior.
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If someone signs up for a free trial of a premium subscription and never pays when the trial is up, would that not count as a paid account, even though it is not active?
Huh? If you don't pay, your premium subscription gets cancelled.
 
Spotify is just flat out better. I love that I can control playback from any device, not just the device I am actively playing. I use this frequently as I have two computers at work, an iPad, and iPhone with me. Even when I am playing Spotify on my Windows 10 work machine, it pauses the music because I also happen to have my MacBook running Spotify and my MacBook rings any time my iPhone rings -- and thus Spotify's controls on the MacBook pause the music temporarily even though it's playing out of my Windows machine. Awesome, seamless.

I also like the very, very broad platform support that Spotify has that Apple Music lacks. I can run Spotify on a Chromebook (and have and do!), heck, any thing can run a Chrome web browser, and I can and do run Spotify on my TiVo -- Apple Music doesn't allow that.

Add on top of that Apple Music corrupts my locally ripped iTunes library -- no thanks.
 
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Spotify is a failed model. "60M" paid subscribers NOT, Likely less than 18M. Projected numbers mixed with cancelled subscribers adds up to fraud. Weird that a company that lost 400M in 2016 is going public.

Do you believe that Spotify lies about the amount of revenue it generates from paid subscriptions? For last year it reported around $3 billion in such revenue. This year it will surely generate more. But even $3 billion would, for only 18 million subscribers, mean almost $14 per month. I doubt its average revenue per paid subscriber is that high.

And why would it be weird for a company that's still losing money to go public? That happens quite often.

Spotify model is popular for its free listening option (ads) which over 96% of its "clients" listen to. Problem is only the 200 big artists get paid. The rest are screwed. And of course, the owners of music catalogues (Sony etc) make all the money , billion$. Buh bye music biz

Where are you getting that 96% from? According to Spotify's reporting, those using only the free tier account for around 60% of its users (considered as paid subscribers and monthly active users of the free tier). It does still have more users of the free tier than of the paid tier. But the paid tier generates around 10 times as much revenue.

As for artists getting paid: Of course the bigger artists whose songs get streamed more often get paid more money, depending on their deals with labels and publishers. And, of course, to the extent artists have deals with such entities the amount of money they end up getting is affected. That's true with regard to digital downloads and sales of physical copies as well. That doesn't mean that Spotify isn't paying a substantial amount of money to rights holders. Rather, it means that many artists have given substantial portions of their rights (to collect, e.g., royalties) to, e.g., labels.
 
I think you are confusing cause and effect. Apple launched Apple Music because the subscription market had started booming, so they could no longer afford to ignore it.
I'm sure you have some sources? I doubt very much that Spotify misreports these crucial numbers. The music industry knows exactly how many active users and subscribers they have.
[doublepost=1501597857][/doublepost]Almost the entire desktop software industry relies on Microsoft. What's the problem?
But they aren't, because (1) they also benefit from a hugely popular service like Spotify and (2) they'd get in trouble with government authorities for anti-competitive behavior.
[doublepost=1501598329][/doublepost]Huh? If you don't pay, your premium subscription gets cancelled.

Will be interesting to see if HomePod is apple music only.

Amazon no longer sell chrome cast or Apple TV GoogleHome as they are a direct competitor to Fire Sticks and Alexa Echo.
Is this not anti-competitive? Obviously amazon felt it was not benefiting them to cannibalise their own products, so they pulled the plug.
 
I think you are confusing cause and effect. Apple launched Apple Music because the subscription market had started booming, so they could no longer afford to ignore it.
I'm sure you have some sources? I doubt very much that Spotify misreports these crucial numbers. The music industry knows exactly how many active users and subscribers they have.
[doublepost=1501597857][/doublepost]Almost the entire desktop software industry relies on Microsoft. What's the problem?
But they aren't, because (1) they also benefit from a hugely popular service like Spotify and (2) they'd get in trouble with government authorities for anti-competitive behavior.
[doublepost=1501598329][/doublepost]Huh? If you don't pay, your premium subscription gets cancelled.
I'm not sure it gets cancelled. If it's like most other subscription it gets put on hold, in case you end up coming back. They do not delete your information.

They can manipulate the numbers, it happens all the time with private companies. I would like to know why you blindly believe these numbers when there is no evidence to support them, other than what Spotify says.

There is reason for Spotify to manipulate the numbers. Public opinion is a big one that comes to mind. They are wanting to be a publicly traded company so they need to make potential stockholders think they are blowing the doors off the competition. You are convinced they are and I am convinced they are not. Maybe we should agree to disagree.
 
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[doublepost=1501592886][/doublepost]Spotify is a failed model. "60M" paid subscribers NOT, Likely less than 18M. Projected numbers mixed with cancelled subscribers adds up to fraud. Weird that a company that lost 400M in 2016 is going public.
[doublepost=1501593340][/doublepost]

Spotify model is popular for its free listening option (ads) which over 96% of its "clients" listen to. Problem is only the 200 big artists get paid. The rest are screwed. And of course, the owners of music catalogues (Sony etc) make all the money , billion$. Buh bye music biz

I dunno. I'm a long-time Spotify subscriber and I've never used Spotify free tier so I don't even know what it's like. It's never been about "free" for me.

The price has nothing to do with why I like Spotify, and why I have zero interest in Apple Music -- it's the experience and the features and the wide platform support.

1. I already use iTunes for my purchased and CD-ripped (yes, purchased) content. I don't like that I've lost some of my music because iTunes Match replaced my tracks and even made some just plain unavailable. I noted when helping my mom set up her Apple Music on her iMac (she already was using it on her iPhone and paying for it) that it "merged" her library with Apple Music downloads, and I suspect it's using the same rickety "matching" technology which screwed up my library -- no thanks.

2. Spotify is supported on far more platforms than Apple. My friend tells Alexa (Amazon Echo) to play from Spotify. Pretty sure that doesn't work for Apple Music. I use my Spotify on a Chromebook, on my TiVo, as well as on my Windows and Mac computers, Windows 10 Phone, and iPhone and Android phones and tablets. It just works. Even better, it works to control what's playing even when it's not playing on the output. Just seamless and awesome. Apple Music? Nah.
 
Nobody cares about random TV shows on a music app - or silly 2 week album exclusive. Spotify is just hands down a beter service in every way.
 
[doublepost=1501592886][/doublepost]Spotify is a failed model. "60M" paid subscribers NOT, Likely less than 18M. Projected numbers mixed with cancelled subscribers adds up to fraud. Weird that a company that lost 400M in 2016 is going public.
[doublepost=1501593340][/doublepost]

Spotify model is popular for its free listening option (ads) which over 96% of its "clients" listen to. Problem is only the 200 big artists get paid. The rest are screwed. And of course, the owners of music catalogues (Sony etc) make all the money , billion$. Buh bye music biz

So you're saying that Spotify is cooking their books when they reported $3.06B in revenue for 2016? Also, lots of tech companies go public with huge losses. Snapchat has posted a loss every quarter pre and post IPO and they admitted that they'll probably never be profitable. Twitter has posted a $100M+ loss every quarter since going IPO in 2013. Uber, which will go public most likely next year, lost $708M in just the first 3 months of 2017.
 
What's crazy is that Apple DOES pay more than Spotify, but even on Apple you'd still have to listen to your own artists for over 100 hours in a single month to give them your full $10 fee in streaming royalties. Otherwise you are subsidizing the listening of other users.

That was based on songs being 4 minutes long and some figures from June 2017. Spotify pays .0038 per stream. Apple pays .0064. Tidal pays nearly double at .0110.

Also, my math may be totally wrong... these numbers are so small that it hurts my brain.

Agreed. Musicians are being shortchanged in the era of streaming.
 
Your personal preferences and priorities call Netflix a bargain. My particular preferences and priorities call AM a bargain -- especially with regard to the very large library that AM allows (and that Spotify does not). I listen to my 40,000 tracks one album at a time, but boy, is it nice to shuffle through all those pre-selected tracks when I'm not sure what I want to listen to. But then, I am 68 years old, and I've had way more than enough of "old school" during those years. It is not particularly pleasant to wait 3 weeks for an LP to arrive like I had to back in the 60's.

Wasn't it exciting to go into record stores to hang out and listen to the lastest tracks while looking at all the great album art though? I was born in '85 and got to experience the record store experience until 2006-2007 when the last of the Tower Records and Virgin stores shut down. There are still indie shops I visit in the Village from time to time just to support local businesses instead of Amazon, Best Buy or Apple.
 
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Wasn't it exciting to go into record stores to hang out and listen to the lastest tracks while looking at all the great album art though? I was born in '85 and got to experience the record store experience until 2006-2007 when the last of the Tower Records and Virgin stores shut down. There are still indie shops I visit in the Village from time to time just to support local businesses instead of Amazon, Best Buy or Apple.

Record stores were exciting, and monophonic was the big thing in the 50's with early 60's stereo viewed skeptically. My first Beatles albums were mono. But as your horizons expanded and when you wanted something rather obscure, and you didn't live in a large city, as I did not, then you were at the mercy of the record clubs. Keep in mind that there weren't easily accessed mail order record sources then. Order processing was all on paper, and 3 to 4 week turnaround times were the norm. I have 500 or so LPs and still very much enjoy listening and looking. It is interesting to me to see the revival of record stores and their continuation in big cities.
 
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Record stores were exciting, and monophonic was the big thing in the 50's with early 60's stereo viewed skeptically. My first Beatles albums were mono. But as your horizons expanded and when you wanted something rather obscure, and you didn't live in a large city, as I did not, then you were at the mercy of the record clubs. Keep in mind that there weren't easily accessed mail order record sources then. Order processing was all on paper, and 3 to 4 week turnaround times were the norm. I have 500 or so LPs and still very much enjoy listening and looking. It is interesting to me to see the revival of record stores and their continuation in big cities.

I've listened to Beatles in mono and stereo. I find both versions have something to offer although I always prefer original recordings and with movies black & white if they were shot this way. Even in 2000 there were obscure records that I wasn't able to purchase through the big record store chains. Usually indie shops were happy to order the album I wanted. There's nothing like the personal service that a mom & pop shop can provide. Really sad that most are out of business. But there's no doubt that the convenience of digital distribution and storage is unmatched. It's still unbelievable to be able to carry an entire music library with you anywhere in the world. I used to have to choose what discs to take with me whenever I went abroad along with a Discman. I think my cd wallet held about 20-25 or so.
 
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I'm not sure it gets cancelled. If it's like most other subscription it gets put on hold, in case you end up coming back. They do not delete your information.
They downgrade your account to the non-premium version. It happened to me once when one of my credit cards was reissued due to the Target hack a few years ago.
They can manipulate the numbers, it happens all the time with private companies. I would like to know why you blindly believe these numbers when there is no evidence to support them, other than what Spotify says.
For one, if you claim that Spotify is cooking the numbers the burden of proof is on you. Second, I already mentioned why I don't believe they are likely to misrepresent the numbers: The music industry knows exactly how many users they have. If they lied to the public, it would be discovered quickly.
There is reason for Spotify to manipulate the numbers. Public opinion is a big one that comes to mind. They are wanting to be a publicly traded company so they need to make potential stockholders think they are blowing the doors off the competition. You are convinced they are and I am convinced they are not. Maybe we should agree to disagree.
To me all these conspiracy theories about fraudulent numbers sound like Apple fans saying "if they beat Apple, they must be cheating".
 
Spotify is just flat out better. I love that I can control playback from any device, not just the device I am actively playing. I use this frequently as I have two computers at work, an iPad, and iPhone with me. Even when I am playing Spotify on my Windows 10 work machine, it pauses the music because I also happen to have my MacBook running Spotify and my MacBook rings any time my iPhone rings -- and thus Spotify's controls on the MacBook pause the music temporarily even though it's playing out of my Windows machine. Awesome, seamless.

I also like the very, very broad platform support that Spotify has that Apple Music lacks. I can run Spotify on a Chromebook (and have and do!), heck, any thing can run a Chrome web browser, and I can and do run Spotify on my TiVo -- Apple Music doesn't allow that.

Add on top of that Apple Music corrupts my locally ripped iTunes library -- no thanks.
The broad platform is their best feature. The fact that it is on the Echo probably has a lot to do with their subscriber growth.

That being said, it doesn’t compete with Apple Music on iOS/WatchOS/MacOS/tvOS because it doesn’t work with Siri. Apple has chosen to use Apple Music as service to help with ecosystem lock-in rather than just trying to get on every other platform.

In other words, Apple is more concerned with selling their own hardware than being the largest streaming service. Spotify has shown just how hard it is to make a profit in streaming, so using it as a “value added” service seems to make sense.
 
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