by ERIN SINGLETON

Spotify Logo

HEADQUARTERS

Spotify AB
Birger Jarlsgatan 61, 10tr
113 56 Stockholm
Sweden
556786-5729
(Research & Development)

Spotify Ltd.
4th Floor
25 Argyll Street
London W1F 7TU
United Kingdom
(Main headquarters)

http://www.spotify.com/

KEY EXECUTIVES [1]

ABOUT 

Spotify Interfaces

 Spotify is a digital music streaming service that allows users to create personal playlists and radio stations, browse Spotify-curated playlists, and share music with friends. Users can do this through their mobile devices, tablets, or desktop computers. The service currently has more than 30 million songs registered within its system through licenses with major labels and recording artists [2]. Developed in 2006 by entrepreneurs Daniel Ek and Martin Lorentzon in Stockholm, Sweden, Spotify was created as a response to the illegal downloading of music going on by consumers through piracy sites like Napster [3]. In 2008 the service was launched in Scandinavia, France, the U.K. and Spain; in 2011, it made its way to the U.S [3]. There are currently over 60 million users (15 million of which are paying users,) 1.5 billion playlists, and 20,000 songs added per day [2].

MARKET EXPANSION

Spotify markets worldwide

Spotify is currently available in 58 markets worldwide, including Brazil, Germany, New Zealand, Nicaragua, Taiwan, Italy, and more [2]. In 2013, Spotify expanded to 8 new locations in its steps towards penetrating Latin America and Asia markets, launching in Mexico, Hong Kong, Malaysia, and Singapore [4]. Spotify introduced Canada’s launch in 2014 [5]. Plans to enter Japan are still in the works, and previous plans to enter Russia have been halted due to its unstable economic conditions [6]. As Spotify has continued to expand its availability across the globe, its number of users has greatly increased every year.

 FINANCIALS

A comparison of market shares in the Internet radio space

Despite industry rumors, Spotify still remains a privately funded company and is not going public anytime soon[7][8]. Spotify is currently close to completing a new round of funding from Goldman Sachs and an Abu Dhabi sovereign wealth funds, raising $400 million and putting its value at $8.4 billion [9]. After the deal, Spotify will be worth double the value of its closest competitor, Pandora Music ($3.85 billion), despite having higher net losses than Pandora and less market share (6% versus 31%, respectively) [10]. The deal will also put Spotify at the top ranks of the highest valued privately funded technology companies, along with Square, Dropbox, and Airbnb [11].

BUSINESS MODEL

Royalty Pay Out

There are two tiers for Spotify users: ‘freemium,’ a free, ad-supported streaming format, and ‘premium,’ an ad-free streaming subscription for $9.99/month. The premium subscription comes with other perks, including unlimited song skips, offline mode ability, and on-demand mobile access [12]. Additionally, there is a student tier for $4.99/month and a family plan for $5.99/month. Spotify philosophizes that the freemium option will drive users to eventually pay for the better experience [2]. Through these payment options, Spotify has paid $2 billion USD to the music industry, $1 billion of which coming from 2014 alone [2]. 70% of revenues earned are paid out to rights holders in the industry, while Spotify holds onto the remaining 30% [2]. Spotify does not pay ‘per stream,’ but rather through royalty statements that are dependent on the country the artist is being streamed, the number of paid users, the country’s currency value, and the artist’s royalty rate. As a result, ‘per stream’ payouts are typically between $0.006 and $0.0084 [2].

ARTIST BACKLASH

Taylor Swift pulled her catalogue off Spotify this fall 2014. Image courtesy of Billboard

With the trending drop of physical sales and digital downloads, there has been heavy debate circulating the music industry involving streaming companies’ payouts. More specifically, there has been criticism from recording artists and songwriters who feel that their ‘art’ is being undervalued and deserves fairer compensation from streaming services. Just this past fall, Taylor Swift pulled her entire catalog off of Spotify in defense of songwriters, saying that she is “not willing to contribute [her] life’s work to an experiment that [she doesn’t] feel fairly compensates the writers, producers, artists, and creators of this music” [13]. Other artists who have called out against the streaming service include Jason Aldean, Radiohead’s Thom Yorke, Talking Heads’ David Byrne, and others [14]. In response, Ek argues that record labels are to blame since they are the owners of the music and thus the ones distributing it to their artists under their own respective terms [14].

Tidal Logo

The biggest artist-led backlash against Spotify is the creation of competitive streaming service Tidal, an artist-owned global music and entertainment platform ran by Jay Z, Beyoncé, Deadmau5, Madonna, and other music superstars [15]. To counter artist tensions, Spotify recently rolled out a new feature called Tweet the Beat, which allows users to express their gratitude towards their favorite artists through an interface pop-up asking them to thank the artist via a pre-written tweet [16]. Rihanna is the only artist users have been asked to thank. This experimental feature has been negatively received by Spotify users, who view it as a spam [15]. A Spotify spokesperson says that, “[They’re] always testing new things on our different platforms and to various user groups,” most likely to stick out amongst the competition [15]. However, Tweet the Beat has been rolled back as a result of such critical opinions.

RECENT NEWS

These past few years have been busy ones for Spotify as the company proactively works towards staying ahead of the concentrated streaming market. In January of 2015, Spotify introduced Touch Preview, a “better way to preview any song, album, artist, or playlist” [17]. This feature allows users to gain a “sneak peak” to a song or playlist by holding down a finger to the screen to preview the song instantaneously. If the user likes what they hear, they can save the song with one simple swipe.

In February of 2015, Spotify introduced an update for desktop users, presenting fully integrated lyrics, powered by Musixmatch, as well as an explore option to search popular lyrics from Spotify’s top songs [18]. The desktop update also included easier access to Friend Feed, which allows users to discover what their friends are currently listening to, as well as a revamping of daily viral charts.

Spotify and Sony form partnership

In March of 2015, Spotify’s PlayStation Music was launched in partnership with Sony Network Entertainment International LLC, making it “easier than ever for gamers to enjoy their favorite tracks whilst playing their favorite games” [19]. Users are able to create their own on-demand soundtracks to their games without interruption to the gaming experience. Just this April 2015, Spotify launched Spotify for Brands, a platform that reveals audience statistics and insights to benefit brands in their endeavor to connect with the younger generations [20].

OVERVIEW

Since its 2006 development and 2008 initial launch, Spotify has demonstrated significant exponential growth over the past 7 years with no sign of slowing down anytime soon. Leading the pack in the digital streaming market, the service is tirelessly working towards providing unique innovations and opportunities for its consumers that one can only expect to continue in the many years to come.

SOURCES

[1] Spotify Biographies, Spotify Press.

[2] Spotify Artists, Spotify Explained.

[3] Forbes, Spotify’s Daniel Ek: The Most Important Man In Music

[4] Chicago Tribune, Spotify Expanding into Asia, Latin America

[5] Spotify Press, Spotify is Live in Canada!

[6] Business Insider, Spotify has cancelled its launch in Russia

[7] Yahoo! Finance, Spotify seeks to hire U.S. filings expert as bankers eye IPO

[8] Yahoo! Finance, Spotify isn’t going public anytime soon

[9] Yahoo! Finance, Spotify Nears New Funding at Valuation of $8.4 Billion

[10] Market Realist, Why Is Spotify’s Valuation More than Double Pandora’s?

[11] Wall Street Journal, The Billion Dollar Startup Club

[12] Pocket-Lint, Spotify free vs Spotify premium: What’s the difference?

[13] Rolling Stone, Taylor Swift’s Label Head Explains Spotify Removal

[14] Rolling Stone, Spotify Founder Fires Back at Taylor Swift

[15] The Telegraph, Stars lead backlist against Spotify with their own music streaming site Tidal

[16] Digital Trends, Spotify Rolls Back ‘Tweet the Beat’ for Rihanna After Back Lash

[17] Spotify Press, Introducing Touch Preview: a better way to preview any song, album, artist, or playlist

[18] Spotify Press, Introducing our latest update for Spotify on desktop

[19] Spotify Press, Soundtrack your game with Spotify on PlayStation Music

[20] Spotify Press, Spotify launches playlist targeting for brands