Will ByteDance's move into the music genre impact Spotify's groove?

TikTok’s parent ByteDance has been drawing up plans with music labels about expanding its music-streaming service globally bringing the heat against streaming giant Spotify. The company is planning to bring its music streaming service "Resso" into several countries, but the US wouldn’t be included in its initial phase of expansion. Resso is currently only available in India, Indonesia and Brazil, according to the individuals who are familiar with the expansion quoted on The Wall Street Journal.

The Wall Street Journal report added that ByteDance wants to gradually include the service to be integrated within TikTok, a popular short-form social video hosting service, while serving as a platform for distributing its music-streaming service worldwide. 

According to The Washington Post, TikTok grew past a billion users pretty quickly and more than 100 million of them are based in the US. The average user in the US is on the app for 80 minutes daily, which is more than the combined time spent on both Facebook and Instagram. While ByteDance as a company has been incredibly successful with its TikTok offering in the social sphere, to date Spotify still holds the number one spot in the world of music - and it has kept this premium position despite stiff competition from the likes of Apple and even YouTube. The company runs on a freemium business model allowing consumers to opt for its ad free subscription service of free ad supported tier.

In its second quarter reporting, the company’s ad-supported revenue grew 31% year-on-year and Spotify reported 433 million monthly active users in its second quarter, up 19% year-over-year and 5 million above guidance, according to CNBC. The company the growth to successful marketing campaigns, Gen Z segment strength in Latin America and account reactivations in Europe. 

With ByteDance fast encroaching in its space, the question now is if it can take on its competition against Spotify? 

Would Byte be a real threat to Spotify?

TikTok has always had music in its DNA. In 2017, less than a year after starting out, ByteDance, its parent company merged with a US-based start-up called Musical.ly. Musical.ly was a social media video platform that allowed users to create short lip-sync and comedy videos, and was initially released in August 2014. In November 2017, ByteDance bought Musical.ly in a deal worth US$800 million to US$1 billion. 

The acquisition was a significant one as musical.ly was well-known, especially to the younger audience, said Sandeep Joseph, CEO and co-founder, Ampersand Advisory. Since then, TikTok has pioneered the discovery of many artists. Hits like as "abcdefu," by Gayle and "Say So" by Doja Cat began as viral ear worms on the platform. 

With its powerful use of video and allowing users to create user-generated content (UGC) with new or familiar soundtracks, TikTok has a cultural cut-through that Spotify, a more sedate platform, doesn’t. "Spotify is great for listening to familiar content or discovering new artists, but it is not a cauldron of creation and lacks engaging visual stimuli," explained Joseph. 

Nonetheless, Spotify’s paid user base and its existing relationships with recording labels and artists - all give it an incumbency advantage," said Joseph, adding:

TikTok users are not used to paying for music. The question is: will they want to?

To keep up with the evolving trends, Spotify needs to add video engagement and explore new ways of prompting cultural relevance and engaging new users, said Joseph. "If TikTok launches subscriptions, it could start to hurt Spotify," said Joseph, adding:

ByteDance is also exploring many new areas such as eCommerce. As such, music definitely seems one area where the company can give Spotify a run for its money.

ByteDance’s current leverage stands in its burgeoning growth in users and time spent on the TikTok app/ecosystem (excluding India), said Stephanie Phua, performance director, Media Group, dentsu Singapore. If it can harness audience and data insights from that base and build a new way to experience music in-app within the TikTok ecosystem, it could further challenge time spent on incumbent music streaming apps should it choose to integrate it into the TikTok ecosystem. 

"It also remains to be seen how Resso is looking to monetise with its integration into the TikTok ecosystem. Or if it is to go head on with Spotify in the freemium model across markets, general outlook remains uncertain on how well Resso can convert users to paid subscriptions," Phua added. 

Spotify still has its pull

Antony Yiu, CEO of PHD, is of the view that at this stage, Resso won’t be a real threat to Spotify. However, he added, there needs to be a closer inspection of how Resso develops in terms of its integration with TikTok. UX/UI design of the integration of the two services is easier said than done. 

“There are plenty of examples of Chinese tech giants that tried to launch streaming video or music services and failed. If you remember in the late 90s, Myspace tried to position itself as a music launchpad for independent artists, but it failed to gain traction. If the two platforms, TikTok and Resso can’t have a seamless integration within the same app, its stickiness will not be there and it will be a steep curve for Bytedance to attract a new user base for its Resso services," Yiu added.

In this game of market share, Yiu says negotiations with music labels for exclusivity will be crucial for attracting subscribers via catalogues. Exclusivity, first launch and playing on elements of FOMO (fear of missing out) will affect the likelihood of people switching from one music streaming service to another. Most importantly, cost will be a defining factor. 

Where spotify has advantage is in its current pricing model, both subscription and non subscription based, and its ability to curate personalised music playlists through both machine learning and AI recommending new songs and playlists based on past listening behaviour. "This makes Spotify unique and sticky," he added.

Spotify has also now moved way beyond the world of music streaming. While it unfortunately cut 11 original podcasts from its platform impacting studios such as Parcast and Gimlet, the platform has dished out massive amounts of money, inking multi-million dollar deals to grow its podcast offerings.  

In July, Spotify acquired Wordle-inspired music guessing game, Heardle. Spotify said in a statement that in addition to keeping music junkies engaged, it hopes Heardle will serve as a music discovery tool for its users. "Playing Heardle might just help you to rediscover old tracks you may have thought you’d forgotten, discover amazing new artists, or finally put a title to that wordless melody you’ve had caught in your head forever," it added. 

Yiu added that on the advertising front, Spotify is also going beyond the norm allowing for advertising units such as sponsored sessions and bespoke partnerships with brands that make it relevant and to connect emotionally with its user base. "My concern is more on how far the innovation of Spotify can go beyond the standard advertising units on their web and app versions and how they can build an ecosystem that connects brands through music with its audience,"  said Yiu. 

Coexisting of platforms

At the end of the day, there is definitely room for both to thrive, said industry players MARKETING-INTERACTIVE spoke to.

Spotify has been in existence for 16 years and has a loyal core of music-loving users. "Most of these paid users are not likely to be swayed away by TikTok, as long as subscription prices are competitive," Joseph said.

Adding on Yiu shared that hypothetically, there would be room for both to coexist. "But we all know that each tech giants can only burn money so far to launch a new service. If they fail to create a reason to 'make it stick' with consumers, eventually one has to pull out because its users leave or the marketing budget runs out," said Yiu. 

Notwithstanding, Asia with its fragmented media ecosystem, it is possible for Resso, Spotify and other players to continue to eventually coexist as they settle to find their own niches and audience communities, said Phua. She added that possibly, for brands such as Spotify, the next frontier to conquer would be the likes of the metaverse.

Related articles: 
Wattpad launches famous PH webnovel authors on Spotify podcasts
Music and K-pop culture collide in latest global Spotify campaign
Spotify acquires music guessing game Heardle
TikTok's parent ByteDance bumps Q2 US lobbying spending by over 100% to US$2.1m
Ex-Mediabrands APAC managing partner Swapna Nayak joins ByteDance