Case study - Spotify - Lecture notes 3 PDF

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Case study Spotify 1. How did Spotify become a leading streaming service in the world? It acknowledged the fact that streaming had become the way to consume music, revitalizing an industry that was seeing growth rates in double digits for the first time since 1990s. Spotify seizes the opportunity of music-streaming industry has entered the digital era. Throughout 2010s, the use of smartphones exploded, and customers need a portable media player which greatly benefited the streaming services Spotify allows free users with unlimited listening every song with audio adverts interrupted in every few songs while Apple only allows them to listen to Beats1 radio and free trial. In 2011. Spotify uses a different approach. Instead of throttling free users, it offered 6 months of free premium use to all the US customers. Afterwards, they could start paying for a subscription or use the free, ad-supported version. In 2018, Spotify began breaking into emerging and immature markets, launching simultaneously in 13 countries in Africa and Middle East. It recently reached an agreement with Tencent, the Chinese online retail giant, to swap 9% of stock between Spotify and Tencent music streaming services. Spotify provided an app that could be installed on many devices while Apple Music cant be installed on smart TV besides Apple TV and it had to use other supporting application. Spotify’s functionality was simple and had a “discover” feature that suggested new artistes based on user’s listening habits. Spotify had several social features like users can follow artists to get news and be alerted when there is new release, users can follow their friends to see what music they were listening to, playlists can be shared and so on. Spotify relaunched Spotify for Artists which offered a lot of features for artists like harnessing data, engaging with fans, selling merchandises. Spotify’s culture is quick innovation and decision making Core problem; competition and reach profitability Apple music we are not in it for money as it is only a dividiosn of Apple 2. What is Spotify revenue model? Type: freemium, subscription, ads model How Spotify earned revenue Advertising: short audio adverts every few songs in free tier, advertising banners in Spotify interface Subscription fees for premium users How the firm produce profits which is in table 2

The cost of goods sold (royalties to right holders) and IT costs are too large which do not produce any profits for Spotify Spotify ’stocks have been a downward slope How the firm produce superior ROIC 3. Challenges Direct competitors like Amazon, Apple Music 2 kinds of streaming-service competitors: on-demand and internet radio Artists’ criticism for low royalties paid Spotify has to secure all types of royalties to offer a particular music track for its customers. Major labels still controlled the distribution of their music. Performance rights were pricier. The contracts were very complex and could be different for publishers and territories. Spotify had to meet certain targets to access the most advantageous rates. If Spotify signed a deal with another publisher that was less advantageous to Spotify, the streaming company would need to adjust rates upwards for the other publishers. Mechanical rights set by courts, government bodies or performing rights organizations. The act of sidestepping publisher as a middleman and artists could receive royalties directly from Spotify which had only invited a few US base independent artists to participate. Because most of well-known artists were tied with their music labels Apple’s own the marketplace-the App Store- gave Apple Music an unfair advantage and Apple obtained a 30% cut of sales of apps sold through the App Store. 4. Is podcasting bringing profitability for Spotify? Value proposition: provide more personalized, more immersive audio experience. Can be streamed or downloaded by listeners. Revenue model: ads and sales “some of the most successful podcasters charge for their podcasts” Market opportunity: the size of the audio market today is only one-tenth of the size of video market. They believe that over time 20% of all listening on Spotify will be non music content and it starts with podcasts. Podcasting was still a very small market but it was growing rapidly (exhibit 5 from nearly 40 mils in 2014 to over 120 mils in 2022). Competitive environment: exhibit 3 Direct competitors: Apple Music, Amazon Size: 40 mils Spotify, 50 mils for Apple Music, and 50 mils for Amazon switching cost is the same as Spotfy’s competitive advantage first mover advantage which earned Spotify a vast amount of customers’ data Spotify allows free users with unlimited listening every song with audio adverts interrupted in every few songs while Apple only allows them to listen to Beats1 radio and free trial. In 2011. Spotify uses a different approach. Instead of throttling free users, it offered 6 months of free premium use to all the US customers. Afterwards, they could start paying for a subscription or use the free, ad-supported version.

Spotify provided an app that could be installed on many devices while Apple Music cant be installed on smart TV besides Apple TV and it had to use other supporting application. Spotify’s functionality was simple and had a “discover” feature that suggested new artistes based on user’s listening habits. Spotify had several social features like users can follow artists to get news and be alerted when there is new release, users can follow their friends to see what music they were listening to, playlists can be shared and so on. Spotify relaunched Spotify for Artists which offered a lot of features for artists like harnessing data, engaging with fans, selling merchandises. Market strategy: As engagement goes up, we both broaden the appeal to new use rs but we also increase the engagement of the existing ones on the platform-which drives down churn, which in turn makes the business overall much stronger. That's the continued path and, if that happened and 1f you also layer on top of it our marketplace business and the trend where gross margin on the core business keeps increasing,...