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It’s no secret that artificial intelligence (AI) tools are poised to disrupt the music industry. The examples are already stacking up. The Beatles released a new song this week, using AI-powered sound analysis tools to split a muddy old Lennon demo into clear and properly separated piano and voice tracks. In the MusicLM experiment, Alphabet lets you compose brief pieces of not-too-shabby music based on a simple text description. And the beat goes on.

But that doesn’t necessarily mean a changing of the guard. Indeed, some of the established leaders of the modern music business are also leading the charge into an AI-powered future.

I’m especially impressed by Spotify (NYSE: SPOT). The Swedish music-streaming and podcast-dispensing veteran has been working on AI ideas for years, and its efforts have only intensified since OpenAI’s ChatGPT launch shone a sizzling spotlight on the AI stage.

Here’s what Spotify is doing with AI and why I see game-changing disruption in the wake of these innovative efforts.

How Spotify is reshaping music discovery with AI

Spotify was quick to react when ChatGPT hit the scene. Three months later, with the AI buzz hitting an all-time high, Spotify introduced an AI-driven personal playlist generator called DJ. This service picks songs based on your listening history — just like SiriusXM Radio‘s Pandora — but also refines the experience based on song-skipping actions and other feedback. That’s a form of supervised machine learning, a very effective way to refine the results from AI-based recommendations.

If that just sounds like another Pandora copy, the AI-based innovation doesn’t stop there. The service probably incorporates some of Spotify’s AI-related patents, such as the ability to monitor ambient sounds around a user to fine-tune song recommendations. DJ also explains its choices in an AI-generated voice narration.

What’s the AI system behind that commentary, you might ask? Well, it’s actually ChatGPT creator OpenAI’s generative AI engine paired with Spotify’s user data and industry know-how. And the voice comes from Spotify’s acquisition of Sonantic, announced in the summer of 2022.

Tracing Spotify’s AI roots way beyond recent innovations

Oh, but Spotify’s AI interest didn’t start with the DJ service or even with the Sonantic buyout. How about the ReadSpeaker deal, a 2021 buyout that provides custom AI voices for Spotify’s Car Thing media player? Nice try, but the AI path still goes much further back in time.

I would argue that Spotify’s AI interest started in 2011 when the company partnered with song identification expert SoundHound AI. Spotify took that crucial step more than a decade before AI was cool and only three years into the company’s own history.

Spotify’s AI-powered future

And Spotify’s engagement in AI technology continues.

In September 2023, its podcasting platform gained the ability to translate audio presentations into Spanish, German, or French while preserving the original speaker’s voice. The list of AI-translated podcasts is very short but will grow over time, and Spotify plans to add more languages.

The company is currently hiring PhDs in machine learning and natural language processing to continue fine-tuning content recommendations and generated playlists. The future is digital and heavily patented.

The overarching idea is to optimize each Spotify user’s engagement with the platform. Better recommendations will inspire more and longer listening sessions, which support Spotify’s advertising sales. At the end of the monetizing rainbow, the most loyal Spotify users convert into paying members to unlock the service’s full functionality and skip those annoying ad breaks.

AI-based tools can help Spotify achieve these goals, giving the company plenty of motivation to buy, build, or license more and more AI and machine learning systems.

From innovation to income: The economic side of Spotify’s AI adventures

For investors, the big question is how Spotify’s AI advancements will translate into financial performance. While these innovations promise to improve user experience and potentially increase subscriber counts, they also come with significant research and development costs. Investors should balance the excitement of AI-driven features with a keen eye on how these investments impact Spotify’s profitability, user retention, user acquisition, and overall market share.

It’s a delicate balance between funding innovation and maintaining a healthy bottom line, which will be crucial for Spotify’s sustained success. But you can rest assured that Spotify is pursuing the potential benefits of an industry-leading AI commitment.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Spotify Technology. The Motley Fool has a disclosure policy.

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