Spotify's Struggle to Capture Gen Z Spending Amid Subscription Fatigue and Rising Competition

In the ever-evolving landscape of digital media, Spotify faces a critical juncture. The company's ability to retain and expand its Gen Z audience-arguably the most coveted demographic in the streaming wars-hinges on its pivot to video content and bundling strategies. Yet, as TikTok and YouTube consolidate their dominance in short-form video and social commerce, Spotify's efforts to reinvigorate growth raise pressing questions about its long-term viability.

Gen Z's Media Habits: A Double-Edged Sword

Gen Z's media consumption is defined by a paradox: they crave immersive, personalized content but are increasingly wary of paying for it. According to a report, 43% of Gen Z prefer YouTube and TikTok over traditional TV or paid streaming services for entertainment and news. These platforms have mastered the art of short-form video, with TikTok users aged 13–24 spending an average of 89 minutes daily on the app. Meanwhile, YouTube's long-form content and educational appeal have secured it a 63% Gen Z user base.

Subscription fatigue exacerbates this challenge. Over 71% of Gen Z users report decision fatigue from managing multiple streaming services, and 41% feel paid content is not worth the price. This skepticism is compounded by the rise of ad-supported alternatives, such as TikTok's microdramas-1- to 2-minute scripted episodes that have captured 28 million U.S. adults, 52% of whom are aged 18–34. For Spotify, which relies heavily on audio-first experiences, the shift to video is not just a strategic pivot but a survival imperative.

Spotify's Video Gambit: Progress, But Gaps Remain

Spotify's Q3 2025 results highlight its aggressive foray into video. The platform now boasts 500,000 video podcasts, with engagement surging 54% year-over-year. The company has also launched music videos for U.S. subscribers and secured broader licensing deals with major labels. However, these efforts lag behind TikTok and YouTube's entrenched positions. For instance, TikTok's nano-creators achieve an engagement rate of 14.21%, nearly triple YouTube's 5.43%. Meanwhile, YouTube's $36.1 billion revenue in 2024-driven by advertising and subscriptions-underscores its financial heft.

Spotify's video content, while growing, remains niche. Data from eMarketer indicates that Gen Z spends 58% of their video time on social media platforms, with YouTube and TikTok dominating. Spotify's video podcasts, though popular among 390 million users, lack the viral, community-driven appeal that defines TikTok's microdramas or YouTube's livestreams. This gap is critical: Gen Z values interactivity and immediacy, traits TikTok and YouTube have weaponized through shoppable content and real-time engagement according to industry analysis.

Bundling and AI: A Path to Retention?

Spotify's bundling strategies and AI innovations offer a glimmer of hope. The company's freemium model has been enhanced to allow free users to search for songs, play tracks from playlists, and share music with friends-features previously reserved for Premium subscribers according to industry reports. These changes aim to reduce churn, particularly among Gen Z, who are more likely to cancel subscriptions than older demographics according to a 2025 survey. Additionally, Spotify's AI DJ-a feature that curates personalized music sessions-has boosted engagement by addressing decision fatigue according to a LinkedIn article.

Bundling, however, remains untested in the Gen Z context. While 23% of Gen Z pay for social media subscriptions like Snapchat+ and X Premium, often through bundles, Spotify's specific bundling initiatives (e.g., partnerships with Netflix or Samsung TV Plus) have yet to demonstrate comparable traction. The company's 2025 Wrapped campaign, which generated 200 million engaged users, highlights the power of social sharing but does not directly address retention.

Financials and Investor Sentiment: Optimism vs. Caution

Spotify's Q3 2025 financials are robust: revenue rose 7% to €4.27 billion, and operating income hit €582 million according to official earnings. The company's 281 million premium subscribers and 713 million monthly active users underscore its scale. Yet, investor sentiment is mixed. While Wall Street projects $23.7 billion in 2026 revenue, the stock's high valuation-trading at a P/S ratio of 8.6 and a P/E ratio of 119-has raised concerns. Analysts like BNP Paribas Exane and Morgan Stanley remain bullish, citing Spotify's AI-driven innovation and pricing power, but Goldman Sachs and Citi have downgraded the stock, citing valuation risks.

The ad-supported segment, a key growth area, has struggled. Spotify's ad revenue fell 6% year-over-year in Q3 2025, contrasting with TikTok's 42.8% year-over-year revenue growth, driven by advertising and commerce. This disparity highlights Spotify's vulnerability in a market where Gen Z's attention-and spending-is increasingly fragmented.

Conclusion: A Race Against Time

Spotify's pivot to video and bundling is a necessary but insufficient response to Gen Z's shifting preferences. While the company's AI-driven personalization and freemium enhancements offer a competitive edge, TikTok and YouTube's dominance in short-form video and social commerce creates a formidable barrier. For investors, the key question is whether Spotify can replicate the viral, community-driven experiences that define its rivals while maintaining its audio-centric identity.

The stakes are high. Gen Z's spending power-estimated at $36 billion annually-will shape the future of digital media. If Spotify fails to capture this demographic, its long-term value could erode despite strong financials. Conversely, a successful pivot could redefine its role as a multimedia hub. For now, the jury is out, but the clock is ticking.