Why do membership based streaming businesses, like Netflix or Spotify look after user engagement?



Isn’t it counter-productive? It makes sense in YT, because it makes profit by having more views and showing ads, but wouldn’t Spotify want you to buy your membership and then listen as less as posible, to save on data streaming and paying the musicians? Or do they want to inflate their metrics as much as they can to atract investors and content creators?

In: Other

Netflix and Spotify are actually different, so I’ll explain this a bit

For a service like Netflix, where you have “unlimited” usage. Generally they want you to use the service– why? Because the more people use the service, the less likely they are to cancel their account. There’s a direct correlation. People who don’t use the service will be more likely to not want to continue paying for it. Netflix pays a flat fee for their content, not a “per use” fee. So if 1 person watches it or 50 million, it doesn’t matter, the cost is already paid and didn’t change. That means Netflix doesn’t care what you watch, they just want you to watch barely enough to not cancel your account. As a note, currently, Netflix is paying much more for their content than they are taking in money from customers, so you can see, this model has potential for significant loss. But also significant gain if your content costs are low.

Spotify however operates VERY differently. They are a “pay per use” service. They don’t pay for content upfront, they pay per song listened to. That means if you listen to zero songs, you’re a more profitable customer than someone who listens to 10 hours a month. Each song that is played they pay for (a little under a penny each play). However, of course, if you listen to zero songs, you’re probably gonna cancel your account since you don’t need it. So they want you to listen to only just the smallest amount necessary for you to not cancel. Spotify likely has some breakeven point around 1000 songs per month (~50 hours of listening), where you are essentially not making or losing them money that particular month, but more or less and they’re ok. Unlike Netflix, since spotify pays only per use, not a big flat fee upfront for unlimited use, their potential for losses is much smaller, as only a very small minority of users will ever listen to so many songs to end up making them unprofitable customers, however, their upside potential is also much lower too! This is a much less risky model, as long as you keep the per cost of each song down to a fairly low level.

Edit: Not to derail the question, but look at the netflix model again and think about their content, what shows they have, what they renew and cancel and so on, and things start making a lot more sense– they only need to do barely enough to keep you from canceling– and thats their most profitable tactic–just enough not to cancel, not to be happy, just don’t cancel.

actual costs of data streaming are absurdly low. Your ISP is charging you ~1000x what it costs to provide you with your data. The money saved on data costs for 100 customers who don’t ever use it is still way lower than the lost income if one of them cancels.

This is also a market with more and more streaming competition every day. There are a bunch of competitors trying to lure your business assy from each other and few people have the money to subscribe to all of them without a thought.