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Spotify

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Spotify NICO AND JAMIE

on 17 March 2015

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Transcript of Spotify

Spotify
Spotify - An Overview
Accounting
What is
Spotify?
Spotify & Royalties
(Intangible Management Controls)
Spotify is a music streaming service that provides content from a range of major and independent record labels.
It was created by Daniel Ek and Martin Lorentzon
in Sweden in 2006, and has since grown to have 60 million users in the 70 nations it is available in.
Business Classification
• Private Limited Company
• International
--> Founded in Sweden, HQ in London
• Online based
• Hires more than 1200 people
Legal and Regulatory Environment Requirements
Conclusion
References
Accounting is seen as the language of business. Accounts can be used to evaluate, assess and compare a business (Barizo, 2015).

Accounts also provide transparency in regards to their business activities.
Spotify. (2014). Spotify Engineering Culture. [Online Video]. 30 January. Available from: https://vimeo.com/85490944. [Accessed: 15 March 2015].

Lunden, I. (2012). Here’s How Spotify Scales Up And Stays Agile. Available: http://techcrunch.com/2012/11/17/heres-how-spotify-scales-up-and-stays-agile-it-runs-squads-like-lean-startups/. Last accessed 15th March 2015.

Kniberg, H., Ivarsson, A. (2012). Agile @ Spotify. Available: http://www.scribd.com/doc/113617905/Scaling-Agile-Spotify. Last accessed 15th March 2015.

Spotify. (2015). Spotify Explained. Available: http://www.spotifyartists.com/spotify-explained/. Last accessed 15th March 2015.

Barizo, D (2015) ‘What is accounting?' [Online] Available at: http://www.accounting-degree.org/what-is-accounting/ (Accessed: 10th March 2015)

LeJacq, Y (2012) 'Spotify Gets $100M In Investments, Including $25M From Coca-Cola and Fidelity -Report' [Online] Available at: http://www.ibtimes.com/spotify-gets-100m-investments-including-25m-coca-cola-fidelity-report-880180 (Accessed: 10th March 2015)

Alexe, D. (2015). “Spotify-ing“ the EU‘s copyright laws. Available: http://www.neurope.eu/article/“spotify-ing“-eu‘s-copyright-laws. Last accessed 17th March 2015.

Companybug, 2015 'What is the Companies Act 2006?' [Online] Available at: http://www.companybug.com/what-is-the-companies-act-2006/ (Accessed: 11th March 2015)

OfCom, 2015 'What is Ofcom?' [Online] Available at: http://www.ofcom.org.uk/about/what-is-ofcom/ (Accessed: 11th March 2015)

Lindvall, H 2013 'Spotify Cofounder Martin Lorentzon Outed as a Tax Dodger' [Online] Available at: http://www.digitalmusicnews.com/permalink/2013/04/25/taxdodgers (Accessed: 12th March 2015)

Kafka, P 2014 'Spotify Is a Booming, Billion-Dollar Business' [Online] Available at: http://recode.net/2014/11/25/spotify-is-a-booming-billion-dollar-business/ (Accessed: 12th March 2015)
- Managing finance

- Creating budgets

- Identifying risks

- Spotting problems

- Communicating between investors, suppliers, partners and banks

- Recording, verifying and reporting assets, liabilities, income and expenses (royalties)
Types of Accounting
Users of Accounts
- Management accounting (Internal management for day-day business)

- Financial accounting (for external business e.g. banks / record labels)

- Tax accounting (to report tax e.g. HMRC)

- Book keeping (to records accounts)

- Spotify

- Investors like Coca Cola (LeJacq, 2012)

- Partners

- Suppliers (Record Labels)

- Employees

- Banks

- Government

- Companies House
Under the Companies Act 2006

It is a legal requirement for companies to keep a record of their accounts (Companybug, 2015).

Companies House (incorporates and dissolves companies)



OfCom (helps track copyright infringement and protects users under the communications act 2003 (OfCom, 2015) (such as explicit lyrics)

-Health and Safety at work act 1974

- European Legislation
-> Spotify want to create legislation that will cover all 28 EU nations, as opposed to having to negotiate with each country individually

- Employment Legislation (minimum wage)

- Consumer Protection (credit cards and privacy)

Martin Lorentzon Dodging Tax
HMRC (collects and monitors tax)

Spotify co-founder, Martin Lorentzon is registered as a swedish resident

Digital Music News suggests that Martin has avoided paying $9.1M in corporation tax. (Lindvall, 2013)
Benefits of Accounting
Structure
Spotify "divid[es] up...into small clusters" and "runs each like a start up in its own right"


But there are both pros and cons to this...


Spotify has a range of different job departments across all of their territories.

Dividing the company into three sections - Tech, Product and Business - allows for optimal development across all areas of the company.


Examples of some departments include Product Design, Music Programmers and Growth Analysis.
Entrepreneurship
Entrepreneurship is the development of a business from the ground up.

Daniel Ek started Spotify to provide a service for easy, on-demand access to high quality music, without having to resort to piracy.

Ek took on a large amount of risk, as Spotify was attempting to become one of the first fully licensed 'streaming' programs. Something such as a new law bringing a minimum royalty rate to artists could prove detrimental to the company, for example.
Profit and Loss can be used to measure success.

Spotify has grown fast over the years but has never made a profit.

This year they are expected to make their first profit as they now have over 12.5million subscribers (Kafta, 2014).
Profit / Loss
This chart shows the decline in the music industry since 1997.

Downloads have helped reduce the decline, however there is still a huge decrease in the amount of money spent.

Spotify claim this is due to a "shift in music listening behaviour".
Spotify aims to boost the value of the industry by creating a system that fairly pays artists for their work.

This chart compares how much Spotify Premium costs annually and average amount of money spent by a US music consumer.

A Spotify Premium member provides over double the revenue to the music industry every year than the average US music consumer.
Spotify aims to 'convince millions of people around the world to become Premium subscribers', allowing them to 're-grow the music industry.'
Consumer Spending
The amount of money that Spotify provides to artists has been increasing year-on-year.

In 2014 alone, they paid out $1bn to artists worldwide.
Spotify pays royalties on every track played. Around 70% of the revenue goes to rights holders, such as labels, publishers, distributors and sometimes even artists themselves.
Spotify works out artists' revenue through a simple formula.

1. Spotify Monthly Revenue: total revenue in a given month from advertising and subscriptions.

2. Artist’s streams ÷ total streams: calculates “market share” on Spotify.

3. Royalties paid to master and publishing owners (~70%)

4. Artist’s royalty rate: the label or publisher pays each artist according to the royalty rate in their contract.

5. Artist Pay Out: the end royalty paid out to the artist after the rights holder royalty split and any other deductions have been applied.
Our Team
Jamie Skinner covered Spotify's Business Classification, Entrepreneurship, Management Controls (Royalties), as well as a business overview.

Nico Rooney covered Accounting and the Legal and Regulatory Environment.

Nana Sampah was not present as he is mitigating this assessment
Presenting today...
Jamie Skinner



Nico Rooney
• Spotify is an evergrowing company

• Despite having not yet made a profit, they are highly successful

• In nine years they've reached 60m users, with 12.5m paid members

• Performing better than Pandora Radio

• Whilst royalty rates are lower than other media in the past, they are increasing
Spotify vs Pandora
Pandora is a radio style streaming service
-> Differs to Spotify's 'on demand' service

Pandora is a Public Company in the USA

- Shares can be bought on the Stock Exchange Market such as the NYSE
- Financial details have to be transparent for public viewing
- Pandora has around 1,300 employees
- Pandora has 3 million paid memberships
Full transcript