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Spotify Case Analysis

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by

Leonardo Miloti

on 4 December 2015

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Transcript of Spotify Case Analysis

Value Chain Analysis
Financial Reviews
Background
Founded in 2006 by Daniel Elk & Martin Lorentzon
Increase in Digital Music Market through multiple servers on the same platform
Inspiration from pirating through peer-to-peer architecture
Creation of a more superior technology infrastructure than pirating platforms
Business Model Analysis
Resources
Spotify Case Analysis

By:
Next Level Consultants

Tomi Babaloa
Leonardo Miloti
Jara Chewaka
Megan Canady
Social media integration and continuity
Developmental platform that allows outside developers the opportunity to create 3rd party apps for Spotify(MusixMatch/SongKick )
Extensive promotions through corporate partnerships
Close to 300 million in outside capital from investors
Political Analysis
Economic Analysis
Socio-Cultural Analysis
Technological Analysis
Supplier Power
Buyer Power
Competitive Rivalry
Strengths
Weaknesses
Opportunities
Threats
Recommendations
Works Cited
Royalties paid by Spotify are either the same or even higher than competing companies.
Complex Revenue Stream
70% of the Gross Revenue goes directly to paying the rights holders
67% of digital music revenue is accounted from downloading songs as apposed to streaming them
Only 20 million out of the 75 million users are paying for the service(27%)
As more customers join, the price that Spotify has to pay right holders increases
Growing number of musicians who are refusing to let thier music be played on Spotify because they feel the compensation is too low.
The rapid growth of Apple music, backed by their extensive relationship with record companies
Large Amounts of competitors that have been entering the market
Non-Profitable Industry
Growing cost of maintaining and servicing the networks used to power Spotify
Increase probability of Cyber attacks or hacks, which lead to less convidence from consumers
Lack of fixed rates
Users that have subscriptions with Spotify are less likely to use piracy programs to listen to music
Social Media Integration that creates a bigger platform for advertisement.
User Friendly app
Entered the music streaming industry realtively early
Competitive pricing, supplemented by a free version of their product.
Strive to partner with more automobile corporations in order to integrate the Spotify software into more cars
Improvement in the radio option, especially search optimization. A merger with Pandora would solve this with its 81.5 million active users.
Inclusion of more genres of music from countries which are not in the western world by default like Nigeria, India, South Africa etc. It would be cheaper to acquire these artists content and lead to more subscriptions, in the local regions as well as abroad.
Working closer with up and coming artists who are new to the music industry would also increase profitability and diversify the catalogue.
More restrictions on copyright laws
Spotify has been sued over user curated playlists. Sued for copyright infringement because its’ playlists resembled compilation albums.
Sued by Johan Johansson, litigate against his label for distributing his music to Spotify without his permission (2013)
Proposed changes in copyright law could render online music streaming more expensive
The United States Copyright Office released a report recommending sweeping reforms to the existing music licensing system.
Copyright and the Music Marketplace-
Streaming a song, is considered “performance” of a copyrighted work, § 106(4) copyright act public performance right for publishers and the § 106(6) copyright act digital public performance right for record labels. Unlike the downloading market, the streaming market is relatively young and thus the applicable law is less established and more complex.
Sony was sued because its stake in Spotify, has been deemed harmful to Artists, as they’re being paid below market streaming royalty rates.
User Generated Playlists that create more personalized choices
Developmental program that allows developers access to create 3rd party apps for Spotify
Create value jointly with customers

The trend has moved away from purchasing CDs to accessing music digitally.
The trend of obtaining music via clicks not money.
Increase in number of genres and sub-genres of music, and emergence of more indie artists.
The latest trend is a return to paying for music via downloading or streaming.
An increase in internet speeds has led to increased sharing of music and purchase of music.
67% of digital music is purchased via downloads as opposed to streaming
Rise of social media has given a bigger platform to share and advertise
The increased use of handheld devises has increased the demand of digital music
Hardware & software integration in mobile vehicles
Based on the Ansoff’s Metrics

1)Market Penetration “Least Risky”


2)Product development (Medium risk)
Concerts and Festivals
Due to its strong ties with music artists and recording labels Spotify could venture into hosting festivals and concerts,using subscription data (demographic, geographical data, and data on musical tastes) to select what artists to perform, when they perform and the best regions for them to do so.


3) Market Development
Total value of the digitally distributed music market was around 2.3 billion for 2015
The music streaming market just surpassed a billion in 2015, growing 23% from last year
Value of paid subscriptions for music streaming services topped 478 million

High Supplier Power
supply of music is dependent on record label lobby groups, record labels and the artists themselves.

And with an increasing number of Artists and platforms to share music, there’s an abundance of choice.

High Buyer Power
The buyer has many options for streaming and downloading like Apple Music, Pandora WIMP, RDIO, and Tidal, as well as internet radio like IHeartRadio and Serius XFM.

Their major competitor Apple Music is priced the same.

There are still illegal downloading services UTorrent,Pirate bay and Waptrick which represent a large amount of potential profits for the industry on a whole.

Other Recommendations
Upfront cash payouts to independent artistes, with a payout cap to ensure costs remain variable.
Additional incentives in form of commissions will ensure quality and content continuity.
This strategy will reduce earnings per artiste but will exponentially increase the amount of indie artiste on the company’s catalog.

Market Developments Very Risky

Exploration of digital music markets in developing countries. (NIgeria, India, South Africa)
adaptation of the product to suit their internet speeds which may be slower,
inclusion of indigenous artists.
Will be advantageous because there is an absence of copyright lobby groups and a centralized record label system. Signing artistes would be cheaper alo because they’re exposed to less disposable income compared to American Artistes also, it would resonate with fans of these artistes in areas where Spotify already exists.
Chandna, Pulkit. "Proposed Changes in Copyright Law Could Render Online Music Streaming More Expensive." Techchive. N.p., n.d. Web. 3 Dec. 2015.
Prindle, Drew. "Breaking the Law." Digital Trends. N.p., n.d. Web. 3 Dec. 2015.
Tide, Phil. "8 Essential Places to Get Your Music." App Music Marketing. N.p., n.d. Web. 3 Dec. 2015.
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