Britain’s tabloids have long known and ascribed to the fact that sensationalist content can attract attention and subscribers. But it can also turn people away, particularly when such content is not only false, but dangerous and life-threatening.
As Spotify Technology (NYSE SPOT) tries to walk a tightrope between the two extremes, investors are questioning the stock’s long-term prospects, particularly after news that the streaming service experienced languishing subscription growth in its most recent quarter.
Joe Rogan, a celebrity podcaster on Spotify, has made headlines in recent weeks for spreading misinformation about COVID-19 vaccines: wildly ridiculous claims such as the fact that the vaccines can alter your genes; that getting vaccinated after having COVID can lead to major side effects; that the vaccines are more harmful to children than the virus and that the controversial anti-parasitic drug Ivermectin can cure COVID.
Despite criticism of Rogan’s claims by Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases and the chief medical advisor for the President of the United States, and others regarding the danger of such claims, Spotify continues to air Rogan’s podcast. And it has since doubled down on its commitment to Rogan’s program, even as singers such as Neil Young – including his former band Crosby, Stills, Nash & Young, Joni Mitchell and India Arie, among others, have given the streaming service an ultimatum to cease Rogan’s harmful content or pull their catalogs from its offerings.
Spotify sailing in dangerous waters
Following Young’s January 24th announcement that he was pulling his music, Spotify’s stock experienced a major decline. The stock, which closed the previous week out at $195.53 on January 21, fell as low as $164.41 on January 28 before rebounding slightly to close that day, and the week, out at $172.98.
Now, investors are questioning whether Spotify’s decision to continue backing Rogan – which the company’s CEO Daniel Ek seemingly confirmed in a February 2 speech to his employees where he insisted that it’s bold ambitions sometimes necessitate backing content they may not support – could cause long-term damage to its stock.
“With prominent artists criticizing and pulling their material off Spotify, that’s a very strong statement. And it’s part of a bigger trend that we’re seeing across all popular cultures and the wider movement that we’re in with extreme polarization,” said disinformation expert Shiri Dori-Hacohen, an assistant professor at the University of Connecticut’s Department of Computer Science & Engineering, where she leads its Reducing Information Ecosystem Threats Lab. “At some point, Spotify will have to decided which side it is on. You just can’t really stay immune to that at this point in time,” said Dori-Hacohen, who is also the founder and Chairman of the Board of artificial intelligence backed controversy detection company AuCoDe.io, noting that it is no surprise that a company like Spotify that caters to such a wide audience has gotten caught up in a controversy like this.
Dorri-Hacohen noted that similarly polarizing situations, such as the controversial transgender comments made by author J.K. Rowling, ultimately compel individuals and organizations associated with the individuals at the center of such controversies to make statements regarding their own stances on a topic.
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Short or long-term effects?
While the number of artists who have chosen to remove their catalogs remains minimal, if the protests gain traction and turn into a mass exodus Spotify could find itself with a significant problem on its hands, particularly if it starts losing any of its biggest name artists. “Joe Rogan is part of an entire ecosystem of misinformation… And the reality is that Spotify is a conduit for misinformation, whether they are taking responsibility for it or not,” said Dori-Hacohen. “But I believe there are more likely to be short-term effects, rather than long-term effects,” she said, noting that people tend to have short memories when it comes to controversies like this. She pointed to the boycott of Target that was launched in 2016 by people who were upset about the retailer’s policy of letting transgender people use the bathroom of their choice and the fact that it ultimately had little impact on the company.
Of course, the Rogan controversy is not the only concern investors have about Spotify. The streaming service’s February 2 earnings call further fuelled concerns about its stock when it reported that its fourth-quarter 2021 paid subscription numbers fell short of analysts’ predictions by roughly 1 million subscriptions.
During its most recent trading day on February 3, the stock hit its 52-week low of $155.57, before rebounding a bit to close the trading day at $159.76. The stock’s most recent closing price represents a 32% decline from where it was trading on December 31, 2021, when it closed the calendar year at a price of $234.03. And it is down a whopping 58.76% from its 52-week high of $387.44 on February 22, 2021.
Despite Spotify’s lower than expected subscription numbers, however, analysts continue to view the stock as a good prospect. And the general thinking seems to be that, as long as the Rogan controversy doesn’t pick up steam in a significant way, the stock should ultimately rebound. If that proves to be true, Spotify’s weakened stock price could prove an opportunity for investors who get in now to turn some sizeable long-term profits.
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