The mistake is in diving into a commodity business where you don't control the only thing your customers care about. It's like artisanal gas stations or something.

If Spotify becomes its own "label" then it'll probably have a better chance... given the size of its user-base.

This makes sense.

Netflix is on fire right now with their original series.

Spotify producing some hit records could change the equation. They already have some great content in the Spotify Sessions series.

This is unlikely, since the major labels now have a sizable ownership stake in Spotify. I foresee Spotify slowly jacking up prices as the labels demand it.

I've always wondered why Google and Apple didn't do just that.

They offer some of the biggest distribution channels available, have deep pockets, and have a VERY vested interest in killing the status quo because of the freedom it will give them for using music and promoting artists in new ways.

That is definitely one industry that needs to have more competition.

The book "How Music Got Free" explores that dynamics. Steve Jobs had an idea for Apple Music to launch as a label, doing direct 50/50 split with an artist instead of opaque label contracts.

He'd call Doug Morris (ex-Universal, ex-Warner, ex-Sony) to get him to come onboard as a CEO of that label, but in Morris' view a label that could not cut upfront checks to young artists would not stay in business for long.

Any promising artists would then be schmoozed and seduced by the labels who can cut advance checks and offer real money in the pocket today instead of abstract fairer revenue split down the road. Any existing top artists already have some label relationship that is hard to get out of. What you're left with is a bunch of nobodies, kinda like the MP3.com back in the days.

I might be missing something here, but Apple clearly can bankroll paying artists up front. Any insight into what drove the strategic decision not to (at least in the short term)?

From the book it sounds like they didn't want to. That implies running a whole shebang with scouts, sleazy agents, legal departments that draw up screwy contracts to guarantee future revenues, i.e., everything but the transparency that Apple wanted to bring to market.

Great idea.

What Spotify has going for it is the social graph -- people trade playlists via Spotify, and if all your playlists and your friend's playlists are in Spotify, it makes it harder to switch because of cost or Taylor Swift. It also has probably the most omnipresent music app (although annoyingly no app for Xbox One).

Sounds like a facebook acquisition in the making to me

The problem is that with low scale and low growth prospects, even a profitable business can end up stagnating. Will everyone (founders, employees, investors) want to stay on?

Especially in this case: the business isn’t in a high-​margin niche; it has large direct competitors like Spotify, Apple, Google.