Will the recession change Big Tech’s view on entertainment?

The music that starts Utopia has just announced the cycle of loss, it fits in a very large dynamic that can redefine the entertainment landscape. There are many reasons why the coming global recession will be unique, but the most important for the digital entertainment sector is that it will be the first as modern consumer technology has become mainstream. This is important, not only because of the unprovided space it shows, but also because the technology companies (even the big ones) work differently from the traditional companies, placing big bets on future growth. The strategy works well in boom times, but it is being tested quickly in the face of a downturn. Big tech firms are reducing overhead, especially in bets that plan to be profitable in the future, but not yet. Most forms of digital entertainment fall into this bracket. Streaming music and video have long been the lost leaders of the tech majors, but could that continue in decline?

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2007 was the last year of the recession and the tech world looked very, very different from today. The first iPhone didn’t go on sale until June 2007; Facebook started the year with 14 million users; Netflix launched its streaming service; but Spotify was still a year away from launch; Instagram wouldn’t be launched for another three years; and Snapchat for the other five. So, if the next recession is likely to occur in 2023, it will be the first one in which consumer technology has been dominant.

All of these companies, and many of the rest that drove the consumer tech revolution, grew so quickly because they invested aggressively in the future, rather than waiting to pay for it. It’s a concept that has its origins in the VC world view of: build a product and customer base first, worry about profits later. Without that approach, it is possible that the consumer technology sector would not be anywhere near as developed and developed as it is now. But the strategy needs the foundation for next year to bring more growth, otherwise the model will fall apart. That’s why we’re seeing a resurgence in big tech. Meta laid off 11,000 employees, mostly from its VR Labs division; Stripe cut 1,000 jobs because it expanded during its closing-boom; Apple stopped hiring outside R+D; and 10,00 off look at Amazon cards.

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Apart from all these crowd inaccuracies, one more interesting one has emerged: Amazon is on the way to losing 10 billion dollars a year from its “Worldwide Digital” team, which includes Alexa, Echo, and its broadcasting businesses. Amazon makes its money from Cloud services and commerce, tools and content growth sectors that it is investing in, both for future growth and because they help its core business. Similar arguments can be made for Apple’s streaming businesses (video and music) and, at least, for YouTube Music and YouTube Premium.

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Which begs the question, if tech majors start to dominate in their non-core uses, where does this leave the cycle? In fact, it’s unlikely that tech majors will face such problems that they will have to consider shutting down their streaming services, but they may have to cut back on spending. And when that happens, it’s video that is exposed more than music, because video streaming requires big money in original content, while money for music rights is fixed. All that said, any music rights deals being negotiated with the tech majors from this point forward will see licensees push for cuts wherever they can get them.

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