Good morning,

I am going to dip my toes into some fraught waters today; I think it is worthwhile, though, both for the lessons that tech executives might draw about societal principles, and to better understand how strategic concerns are an important component to when and how those principles are invoked. As always, this is analysis, not judgment.

On to the update:

Spotify and Joe Rogan

From the Financial Times:

Spotify chief executive Daniel Ek apologised to staff for “incredibly hurtful” comments made by podcast host Joe Rogan but said he would not “silence” the popular presenter. Spotify removed about 70 episodes of Joe Rogan’s podcast from its app over the weekend after musician India.Arie posted a video of Rogan using the N-word multiple times on his show…

“Not only are some of Joe Rogan’s comments incredibly hurtful — I want to make clear that they do not represent the values of this company,” Ek told Spotify staff in an email Sunday evening. But he added: “I want to make one point very clear — I do not believe that silencing Joe is the answer.”

Ek expanded on this point in his staff email:

While I strongly condemn what Joe has said and I agree with his decision to remove past episodes from our platform, I realize some will want more. And I want to make one point very clear – I do not believe that silencing Joe is the answer. We should have clear lines around content and take action when they are crossed, but canceling voices is a slippery slope. Looking at the issue more broadly, it’s critical thinking and open debate that powers real and necessary progress.

Another criticism that I continue to hear from many of you is that it’s not just about The Joe Rogan Experience on Spotify; it comes down to our direct relationship with him. In last week’s Town Hall, I outlined to you that we are not the publisher of JRE. But perception due to our exclusive license implies otherwise. So I’ve been wrestling with how this perception squares with our values.

If we believe in having an open platform as a core value of the company, then we must also believe in elevating all types of creators, including those from underrepresented communities and a diversity of backgrounds. We’ve been doing a great deal of work in this area already but I think we can do even more. So I am committing to an incremental investment of $100 million for the licensing, development, and marketing of music (artists and songwriters) and audio content from historically marginalized groups. This will dramatically increase our efforts in these areas. While some might want us to pursue a different path, I believe that more speech on more issues can be highly effective in improving the status quo and enhancing the conversation altogether.

It is very easy to get mired in the muck with regards to this topic, whether it be COVID-19, contextual use of highly objectionable words, or the question of what is or is not free speech. Ek falls into the latter, weighing in on the difference between being a platform or publisher, the value of multiple voices in “the conversation”, etc.

Culture and Principles

I’ve waded into similar weeds myself; back in 2019 I wrote an Article entitled Tech and Liberty that made the argument that constraining the definition of free speech to the First Amendment and its limitation on government was to overlook the importance of free speech as a cultural value. I wrote in discussion of Twitter and Facebook’s differing decision about fact-checking politicans:

Facebook, meanwhile, has struggled to defend its decision in the context of a “marketplace of ideas”. After all, what value is there in a lie? In fact, Mill would argue, there is a great deal of value in exactly that, but it’s a hard case to make! Never mind that most disputes would be less about easily disprovable lies and more about challengeable assumptions.

And that is precisely where the original justification for the First Amendment matters: the point was to avoid tyranny, and Facebook deciding what is or is not true is exactly that — tyranny. It is an approach that is inimical to the culture of free expression that birthed the law about free expression, and the company is right to push back on calls that it be the arbiter of truth.

I am not here to re-litigate the argument, but rather to make a point that ought to be top of mind for tech executives everywhere: it seems quite clear that the argument is over, and my position lost. Just look at Facebook: “Tech and Liberty” was published in the weeks after CEO Mark Zuckerberg made a speech at Georgetown entitled Standing for Voice and Free Expression; over the ensuing two years Facebook has significantly expanded the definition of what is harmful content (driven both by the pandemic and the aftermath of the 2020 election) and by extension the volume of content that it removes. Kevin Roose, the tech columnist for the New York Times, made a similar connection:

Ek is right — the slope is slippery — and the fact of the matter is that we are, at least in terms of the elite culture dominated by U.S. media, at the bottom of the hill. Yes, the First Amendment still exists as a law, but it is hard to argue free expression still exists as a value. In other words, while it used to be the case that simply declaring that you were in favor of free speech was enough to tamp down most controversies, particularly in terms of comedians or edgy personalities, today one is quickly mired in the exact sort of muck I noted above, trying to defend broad principles while distancing oneself from specific examples. It’s an impossible dance, and — not to defend any specific instances of speech (here I dance) — I’m not sure we have yet fully internalized the long-term costs of no longer accepting free speech as a blanket principle citable by everyone from cranks to CEOs.

Music Versus Podcasts and the Long Run

One implication of this observation is that Ek perhaps wishes he had realized it in 2020, before Spotify brought Rogan on board; the podcasts where Rogan used a slur were already part of his catalog, and while Spotify may have thought that podcasts that had existed for years without controversy were covered under the sort of “We support free speech” defense that used to be commonplace, the company might have acted differently had it realized that that defense is, in many quarters, no longer valid. What makes this specific controversy so fascinating from a strategic perspective, though, is that it is plausible Spotify would in fact do it all over again; at a minimum, I am sure there was a lot of consideration about Spotify’s long-term strategy that went into Ek’s email.

Go back to Spotify’s IPO, and the Article I wrote at the time, Lessons From Spotify. I was skeptical about the company’s long-term value precisely because the company didn’t control its supply. This led to two problems: first, Spotify’s marginal costs increased in-line with its revenues, since the payout to labels was not fixed but rather specified as a percentage of revenue. Second, Spotify did not have exclusive access to its content, which meant that competitors like Apple Music had basically the exact same library. That left Spotify the Sisyphean task of winning with a superior user experience without developing the moat that is the payoff for Aggregators.

In fact, you can see these two problems in Spotify’s current crisis: first, the value of Spotify to any one individual artist is fairly muted given that they only capture a tiny slice of Spotify’s revenues (after Spotify and the labels take their share), and, given that many artists primarily monetize through touring, the PR upside from standing up to Spotify may very well outweigh the monetary cost (above and beyond the principles at play); second, users can follow an artist to another service, or simply express their disapproval of Spotify in their own right, without losing access to any of their favorite artists.

It is podcasts, on the other hand, that are Spotify’s Aggregation Play. First, podcasts afford the opportunity of building an advertising network, which if successful would mean that Spotify could provide monetary upside to artists that no other platform could match, providing uncapped upside for Spotify. Secondly, because podcasters monetize primarily through their podcast, and not through touring (which emphasizes the importance of maximizing reach), an exclusive strategy was a much more viable way to build differentiation and increase share (the better with which to build that advertising network).

It is in the case of podcasts, though, where Spotify is discovering the challenges of an Aggregator: when the goal is market power through the most users, then challenges arise when the preferences and proclivities of the masses come in conflict with those who think the masses are wrong. To give a concrete example, I would guess more than half of active U.S. Facebook users voted for Donald Trump in 2016; the vast majority of the media covering Facebook did not. Sure, the latter will argue that their coverage of Facebook is driven by concerns about misinformation, but keep in mind that the Internet is full of misinformation, which means it is easy to find whatever you want to fit any narrative you need, which is useful if that platform is fundamentally threatening.

Again, this isn’t to defend misinformation (here I go dancing again), but to point out that for Spotify this conflict was inevitable: if it wants to appeal to the masses it is going to come in conflict with those opposed to mass preferences, and there is no podcaster who is preferred more than Rogan. That has been to Spotify’s benefit up until the last few weeks; from a Wall Street Journal about the crisis:

“The Joe Rogan Experience” is the No. 1 show in 93 markets, Mr. Ek said during the interview Wednesday. In 2021, Mr. Rogan’s show was the most-listened-to podcast every month in more than 30 markets, including in the U.S., said a person familiar with the matter. Mr. Rogan’s listeners have grown by 75% from the time he joined Spotify’s platform in September 2020 to December 2021, this person said.

Importantly for Spotify’s business, Mr. Rogan’s listeners are highly engaged—they return to Spotify to listen more, and tend to listen to other content beyond his show, the company has said. In short, Mr. Rogan’s show has been crucial to making Spotify the top U.S. podcast platform by listeners, according to audio data provider Edison Research.

Remember, podcasting is a far more appealing business than music in the long run, and, I would add, podcasters are probably more likely to value an old-fashioned absolute free speech commitment. In the meantime, though, music is what Spotify was built on, and still relies on; if more artists were to leave the platform in a preference cascade then the long run will have been the alter on which the short run was sacrificed.

This, more than anything, is why Spotify is trying to play this down the middle: keep Rogan, and the future he represents and is helping to drive, while appeasing those who could actually move the needle in music streaming (i.e. move customers to an alternative like Apple Music). To put it another way, the supplier power and lack of moat in the music business were always a risk to Spotify’s long-term profitability; the full extent of that risk is only now being realized.

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