Could TikTok's Music Streaming App Spell the End for Spotify? – The Motley Fool

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Huge news hit the music industry this week when The Wall Street Journal reported that ByteDance — parent company of the short-form video application TikTok — wants to roll out its music streaming app globally. The app is called Resso and currently is operational in just three markets: India, Indonesia, and Brazil. According to the report, ByteDance is in talks with music labels to get its streaming app available in as many markets as possible and wants to eventually merge it into its flagship TikTok app. 
Leading music streaming service Spotify (SPOT -1.14%) sank on the news and is now down 65% year to date. Resso going global surely has some Spotify investors nervous, but here are a few reasons why those worries may be unwarranted. 
As the report stated, ByteDance is in talks with music labels about bringing their music catalogs onto Resso in more than just three countries. These negotiations and license contracts don’t happen overnight, meaning that we likely won’t see a full rollout of Resso across North America and Europe for a few years. For reference, it took Spotify over a decade to officially launch its music streaming service in virtually every country outside of China.
Spotify is already closing in on 500 million monthly active users (MAUs) and 200 million premium subscribers. Once Resso launches in Spotify’s core markets, it is likely that its user numbers will already be reaching maturity. Therefore, Resso won’t be competing for new music streaming customers but will be trying to convert customers who already use Spotify. This is a much harder task to accomplish, especially when you consider Spotify’s industry-leading churn rate. 
The good thing about this looming competition from Resso is that the application is already live in three large markets: India, Indonesia, and Brazil. Spotify has a large market share in all three of these countries, so it has been a good test for the service.
So far, it has passed with flying colors. Across both the Apple and Android mobile app store rankings, Spotify is ahead of Resso in downloads except on Android in Brazil. That is five out of six wins where the more mature service (Spotify) is getting more downloads each day than the new entrant (Resso). 
To be fair to Resso, TikTok is banned in India, which perhaps gives it a disadvantage in attracting users versus other markets. However, I still think it is a strong testament to Spotify’s execution that in downloads it is generally ahead of this new competitor at the moment. 
Over the last few years, Spotify has evolved from just a music streaming service to an audio platform, with different content mediums like podcasts, live shows, and audiobooks coming onto the service. With an almost limitless library of content that grows in volume each day, the customer value proposition for users to join Spotify gets tougher and tougher to match. 
Spotify’s position is even more defensible because of its exclusive podcast strategy. The company has licensed top shows like The Joe Rogan Experience and Call Her Daddy along with shows popular in international markets to differentiate its service from the competition.
These deals are expensive (the Joe Rogan one is rumored to be worth over $200 million) but they create a great customer acquisition tool to attract millions of new users to Spotify, hopefully switching from competitors like YouTube or Apple Podcasts. Just last quarter, Spotify added 19 million MAUs if you exclude losses from exiting the Russian market.
Lastly, we have seen this story before when it comes to competitors with large pocketbooks. Apple — which owns the hardware and app store that Spotify has to distribute through — launched Apple Music and has run Apple Podcasts for many years. YouTube (owned by Alphabet) has pushed heavily to bundle its music streaming service with its YouTube Premium subscription. Even Amazon has invested heavily in its own music streaming product.
Despite all these investments, Spotify has retained its lead in music streaming and is rapidly gaining market share with podcasts. There are plenty of things to be concerned about with Spotify, including its lack of profitability and margin expansion. However, if history is any indication, competition from big technology companies should not keep you up at night as a Spotify shareholder.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Spotify Technology. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Spotify Technology. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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