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Spotify Cozies Up to Hulu To Fend Off Apple

By Natalie Walters – Apr 20, 2018 at 6:11AM

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Spotify is taking proactive steps to defend its top spot in the music-streaming space.

Spotify (SPOT 3.78%) is teaming up with Hulu to offer customers a bundle of both services for $13. The move comes as Apple (AAPL -1.26%) has been aggressively pursuing TV shows and movies to release on its Apple Music app.

For Spotify, this partnership is a matter of defending its position as the top music streamer with its 71 million paying subscribers against its main competitor, Apple Music, with its 40 million paying subscribers. If Spotify isn't careful, Apple's content strategy could help it leap frog into a position where it will be breathing down Spotify's neck. 

Spotify's platform is shown on a computer, tablet, and two smartphones.

Spotify is defending itself against its main competitor, Apple Music, by announcing a new Hulu partnership. Image source: Hulu.

Spotify teams up with Hulu

Spotify's Hulu partnership means users can now pay just $12.99 per month for access to Hulu's video-on-demand service (with some ad breaks) and Spotify Premium (with no ads). That's only $5 more than Hulu's $7.99 Limited Commercials plan and just $3 more than the regular $9.99 Spotify Premium subscription. In other words, people would be paying $12.99 for a bundle that's worth $17.98. Not a bad deal for customers.

And it's also not a bad deal for Spotify and Hulu. As Disney and Apple lean more into the original content game in the next year, high-quality scripts and talented producers will only get more expensive. Spotify needs Hulu to make up for an area where it was lacking, video content, and Hulu needs Spotify because that's 157 million potential viewers and subscribers for its own site, which is also competing with Netflix (NFLX 9.29%) and Apple Music. In the most recent quarter, Netflix reported a stunning 125 million subscribers worldwide.

The new partnership is a win-win for two companies facing big competition. It's also a role-reversal for Spotify. 

Is Apple's content strategy scaring Spotify?

The Hulu partnership isn't the only recent development in Spotify's content strategy. In recent months, the company has made a 180-degree turn when it comes to multimedia content. 

At the end of 2017, Spotify canceled upcoming episodes of its existing programs that failed to really take off and cancelled other projects that hadn't yet launched. In January, it launched a new, less aggressive content platform called Spotlight, which gives a visual element to podcasts and other audio experiences. Contributors to Spotlight include BuzzFeed News, Cheddar, Gimlet Media, and various artists.

This seems to be at least partially in response to the numerous content announcements coming from its top competitor, Apple. On April 13, model and reality star Kendall Jenner helped launch a new show called Pizza Boys on Apple's Beats 1 radio station. More importantly, Apple has some hot TV shows in the works, including a highly coveted drama series about people who produce a daily morning TV show, starring Reese Witherspoon and Jennifer Aniston. Apple will also revive the Steven Spielberg anthology series Amazing Stories for 10 episodes, with a reported $5 million budget per episode.

As a young company still posting losses, Spotify simply doesn't have the deep pockets to be producing shows on its own that could seriously compete with Apple or Netflix. To put the money situation into perspective, Netflix is set to spend up to $8 billion on content this year. That's more than the $6.1 billion to $6.8 billion revenue range that Spotify is expecting for this year. While Apple is expected to spend a more modest $1 billion on content in 2018, the tech giant has a $268 billion cash hoard at its disposal for when it gets more comfortable and established in the original content space. 

Spotify investors should be happy to see the company making aggressive moves to work out a viable content strategy before Apple starts to launch its own big TV shows. This demonstrates that the company isn't getting too comfy in its spot as the top music streamer, and is aware of the growing importance of original content.

Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
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Netflix, Inc. Stock Quote
Netflix, Inc.
$245.20 (9.29%) $20.84
Spotify Stock Quote
$92.88 (3.78%) $3.38

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