Spotify case Flashcards
what type of industry
music streaming industry
they have the largest market share
How to measure the size of an industry
Annual revenue
Can derive the industry size by 67% of the total revenue → multibillion dollar industry
Is there growth
9% growth from 2021 to 2022
Growing more in countries like asia, africa
Growth is slower in mature markets
Faster in emerging regions
how popular is streaming?
Much easier to use and more accessible, 32% of people use audio streaming so its popular, Streaming is much more popular than downloading→ more access to internet , storage space to download music is a lot of storage, internet got faster
which factors have an affect on streaming?
Technological factors have an impact on streaming and sociocultural impacts such as the pandemic made people listen to music more
is streaming a good industry to be in?
yes
threat of substitutes
Other forms of entertainment
All things that are not streaming (vinyl, downloading, concerts, etc)
Downloading
Radio
Do we have a strong threat of substitutes? no its low. Streaming is the king of the music industry
bargaining power of suppliers
its high. Record labels
Independent artists
Artists make deals with labels who use spotify to distribute content
Taylor swift is an example of how an artist can use their power and pull their music from platforms, but smaller artists dont have the same power. However Taylor swift ended up coming back to spotify
can also charge higher licensing fees
Suppliers are concentrated bc there is less of them compared to the industry
Suppliers goods are critical to spotifys success (need to have good content)
bargaining power of buyers
Low switching costs
The buyers in this industry are the consumers B2C
Undifferentiated product (same songs available and many platforms)
There was a price increase buyers accepted it due to inflation but cannot over charge because buyers can easily change platforms
Advertisers are customers of spotify→ they pay to advertise on spotify
Spotify needs to provide advertising tools so paid advertisements are successful so advertisers are happy and come back
Bargaining power of buyers is high to moderate
Can spotify create switching costs? Maybe put them in a year long contract
threat of new entrants
High
Apple was a new entrant
Samsung
Big names entering
Spotifys rivalry
The rivalries in this industry include: Apple Music, Amazon Music, YouTube Music, SoundCloud, TikTok Music, Title, TenCent, Deezer and piracy platforms.
Tencent is more of a partner to spotify. Spotoify cant provide its service directly to china
Amazon and apple can do bundles because they have other services and spotify cant really do this
Spotify is more focused it has some podcasts and audiobooks
Intense rivalry and have to keep prices low and competitive
Spotify has to keep investing in IT, have new features, have a lot of content and keep improving → could shrink profits bc they have to keep investing
Spotify is not profitable → the forces are eating away at the profits
to succeed in this industry
Need content
Differentiating factors and features
Investment in technology
threats
competition from other giants in the industry like amazon and apple, other forms of entertainment, other substitutes, threat of new entrants, AI business models, lawsuits, a moderate threat of artists leaving
opportunities for Spotify
AI, expanding in developing markets, could enter other industries, encourage self publishing, personalized services.
1990s
MP3 was becoming popular, cd but not anymore
blamed piracy but convenience wins (easy to stream bc you dont have to download)
apple tunes was the first success
in the 2010s, why did streaming music become popular again
bc of the internet and growth of smartphones
music industry in 2024
recording industry is growing and North America is the biggest contributor
growth was slower in more mature markets
growth of the industry has been due to streaming which was 67% bc of emerging markets
where did streaming revenue come from
subscription fees and advertising
the labels
record labels entered into contracts with artists –> then would snend the music to spotify
recording industry was very concentrated and dominated by 3 labels (Sony, Warner, universal)–> part of conglomerates
outside those labels were fragmented
the three had power bc they could afford the cost to breaking new artists
consumers
average consumer time of lustebing to music is growing . 32% audio streaming
Spotify
founded in Sweden and was then launched in the USA where it grew quickly
peaked during covid
piracy was a big factor in emerging countries
engaged in an equity swap with tencet bc spotify was banned in china
Spotifys business model
freemium business model: had twi services which was paid and free
if you use the free, you had to listen ti ads
can be downloaded on many platforms
looked at consumers habits and made for you tab
playlists become important for spotty spptofy introduced social features
very quick to innovate
public company
uses algorthisms based on consumers listening habits (good IT ssystem)
integration with social media apps and messaging apps (horizontal diversification)
have to move faster so that you can be the first to show your new features
spotify for artosts
artists can engage w fans, get data abut their music and consumers, could promote their tours
artists can get data from spotify to engage with fans
fincnail performance
staggering growth rates but yet to have annual profits
had to raise prices
royalties issue
spotifys largest expensive was COGS (royalties and paying shareholders)
two types of royalties were recording and songwriting royalties.
spotify doesn’t pay a fixed amount per stream but a percent of its revenue is allocated to royalties
spotify also doesnt pay the artists but the labels
artists and spotify
artists were paid a lot lower than how much their cpmeptutors paid their artists
they now said that artists at least have to have 1000 streams/ month–> bad for small artists
small artists can use spotify to promote
non music content
recruited popular podcast, added new companies
entered a dea; with Warner bros
offered audiobooks
investing more into non music= more engagement
acquired podcast sudios
spotofys competition
dominated the global streaming segment
attracted larger tech companies like apple. amazon
Apple Music: could be bundled with other apple products
amazon: also be bundled
both cometeted aggressively
google and youtube (strong comp in non music) coming in
tenet was very big but only in china
labels are happy to collaborate with any streaming service
new industry trends
streaming apps becoming a commodity
web 3 applications
NFTS
AI–> could affect the value chain of the music industry
spotify looked at AI and NFTS
spotifuys future
2023 was bad for Spotify –> had to restructure (downsizing) by laying off people
audio was most impacted by cuts but spotify didnt give up (Joe rogan)
vertical vs horizontal integration
vertical: could be acquiring new podcasting companies
horizontal: going into social medias, expanding to podcasts and books
why should Spotify acquire new companies
potify chose to acquire podcast companies instead of forming alliances to gain full control over the content creation and distribution process. By owning these companies outright, Spotify can produce exclusive content, manage monetization (e.g., ads and subscriptions), and differentiate itself from competitors. Acquisitions also allow Spotify to integrate new technologies, platforms, and talent seamlessly into its existing ecosystem
