Grant Nygaard
Headquarters (1)
Research & Development
Spotify AB
Birger Jarlsgatan 61, 10tr
113 56 Stockholm
Sweden
556786-5729
Main Headquarters
Spotify Ltd.
4th Floor
25 Argyll Street
London W1F 7TU
United Kingdom
USA Headquarters
Spotify USA Inc
45 W. 18th Street
7th Floor
New York, NY 10011
USA
http://www.spotify.com/
Key Executives (2)
Barry McCarthy- Chief Financial Officer
Daniel Ek: CEO & Co-Founder
Martin Lorentzon- Co-Founder and Chairman of The Board
Steve Savoca-Head of Content
Gustav Söderström- Chief Product Officer
Overview (Clip courtesy of Vimeo)
Spotify is a commercial music streaming service based in Stockholm, Sweden that provides licensed, label-approved content to consumers using a “freemium” business model (4). Launched in October, 2008 by Swedish entrepreneurs Daniel Ek and Martin Lorentzon, the privately held company has amassed over 75 million users in just 7 years, 20 million of which subscribe to the premium service (3). Available on Mac, Windows, smartphones, tablets, and Smart TV’s, Spotify revolutionized how users could access the world’s music from any platform. By providing a cost-effective, accessible alternative to piracy, Spotify has changed the landscape of engaging with music content.
Financial Information and Revenue Model
Spotify is a privately held and funded company that has no plans of going public as of now, but they have CFO Barry McCarthy on the board, who helped make Netflix a public company, so that may change in the near future (5). Currently valued at more than 8 billion, Spotify is essentially worth more than the entire recording industry combined, which is around 7 billion (6). In terms of a revenue model, Spotify employs the “freemium” approach, which means that the basic service is free with
advertising interruptions, but users can pay $9.99 per month for an ad-free service that can be accessed offline (4). Also, there is an option for college students to access the premium service for $4.99 a month, making the service extremely
attractive to advertisers looking to target a younger demographic (4). When it comes to paying royalties back to label and music providers, Spotify pays rights holders 70% of all revenue generated. Royalty payment amounts are based on individual deals that factor in country, artist, and the amount of premium users (4).
Interface
An example of Spotify’s desktop interface. (Provided by Spotify)
An Example of Spotify’s Mobile Interface. (Provided by Spotify)
Streaming Wars: A Market Fragments
From its release in the U.S, Spotify had dominated the music streaming market with little to no resistance. However, several competitors have begun to pop up, making the market more fragmented than ever. The most notable of these competitors is the recently released Apple Music, which currently boasts close to 15 million subscribers, 6.5
A new competitor has popped up trying to establish market share. Apple Music Logo
of which are paid users of the premium service (6). While this remains a fraction of Spotify’s number, it still is notable due to the fact that the service is less than a year old, and offered a free 3 month premium trial to anyone who signed up. To compete against this, Spotify announced its own trial period, offering 3 months of premium access for just 99 cents (7) .
Another reason Apple was able to grab a share of the market so quickly was its focus on artist-generated content and live curated radio by popular DJs on their “Beats Radio 1” Platform. Boasting celebrity DJs such as Drake and Pharrell Williams to host live shows and create curated content, Apple has been able to get users excited by having exclusive mixes created by artists (8). In response to Beats 1, Spotify has created “In Residence,” a series of podcast playlists curated by the likes of former Sex Pistol Steve Jones and alternative rock band Jungle (9). Although they lack the live component of Beats 1, Spotify hopes to expand this feature to more artists aimed a younger demographic.
Personal Curation
Also in the realm of curated content to compete with Apple, Spotify has scored a hit with its new “Discover Weekly” feature. Launched this quarter, the new addition creates
Spotify has become the most popular streaming service worldwide. Courtesy of App Annie
customized 2-hour playlists for users each week based on listening history and habits. Having accumulated 1.7 billion streams since launch, Spotify’s head of product Matt Ogle said the feature has, “Exceeded our expectations.” (10) This suggestion/discovery model is another reason Spotify has usurped the throne of most popular streaming service from Pandora, the internet radio service, this quarter (11) .
Examples like these show how, even in an evolving market, Spotify has found ways to stay on top when it comes to music streaming through new ways for users to engage with music. This yields results, as they are now able to dominate globally.
Spotify and Artists: The Good, The Bad, and The Ugly
This past semester, Spotify has had both positive and questionable interactions with content creators. Here are some notable ones:
The Good: The “Year in Music” (12)
On November 30th, Spotify released its annual “Year in Music” figures to the public, showcasing how Spotify numbers have become a legitimate measurement for success in the industry, and how it can be extremely beneficial for exposing music to a large audience.
In 2015, Spotify users streamed over 20 Billion hours of music across all platforms. Within those 20 billion hours, rapper Drake was the most popular, with 1.6 billion streams and 46 million unique listeners, showing how Spotify has helped his music reach a massive audience. Also, Major Lazer’s track, “Lean On” was named the most streamed track ever, with 540 million plays overall worldwide. Justin Bieber also broke records with his new album “Purpose,” getting 36 million streams on November 13th, the day it was released (available for streaming via Spotify below). These numbers show the power streaming can give the artist, as getting 36 million plays the first day an album was released was virtually impossible in the days of solely physical releases.
The Bad: Adele and 25 Absent on Spotify (13)
Although numbers for streaming are higher than ever, the projected highest-selling album of the year, English songstress Adele’s “25”, was not put up for streaming on Spotify at
Adele isn’t Spotify’s biggest fan. Courtesy of XL Recordings
her request. Having sold over 4 million copies in the US alone, the album is breaking sales records in an era where album sales are at their lowest point in history. This album would have surely boosted streaming numbers for Spotify and boosted ad sales to target free users. When asked about the lack of streaming for “25”, Adele said, “It probably is the
future, but, eh,” showing her lack of enthusiasm towards the method. To make matters worse, Pandora has exclusive rights to the album, putting the potential revenue in a competitor’s hands.
The Ugly: Victory Records Controversy (14)
The catalog of indie rock label Victory was pulled off of Spotify after the company inquired with Spotify about inadequate royalty payments. This practice of taking catalogs off the service is ugly because it sets a dangerous precedent for indie labels in a streaming
Victory Records Logo. Courtesy of Victory
climate, who may not have as much leverage to negotiate with Spotify as a major label like UMG would. Marginalizing independent music on Spotify would hurt not only the artists, but create an environment where conglomerates make all decisions.
Hopefully Spotify could expand on positive artist relations while attempting to help others be more comfortable with streaming in the future.
Overview
Spotify has had a tumultuous but overall successful few months, as they navigated an evolving, fragmenting market successfully and have become the de facto music streaming service around the globe. It will be interesting to see how they can deal with a rising Apple Music and recent backlash over royalties and label agreements while still engaging users with curated and personalized content.
Sources
(2) Bloomberg Business Company Overview of Spotify
(3) Time Magazine What is Spotify?
(4) Spotify Artists Spotify Explained
(5) Huffington Post Spotify Just Hired The Man Who Took Netflix Public
(6) Digital Music News Spotify now Worth More Than Entire Recording Industry
(6) Wall Street Journal Apple Music Now has 15 Million Users
(7) Spotify Premium for 99 Cents
(9) NME Spotify Introduces “In Residence”
(10) Time Here’s The Story Behind Spotify’s Coolest Feature
(11) Radio and Music Spotify Becomes World’s go-to Streaming Service
(12) Billboard Spotify’s Year in Music
(13) The Verge Adele Admits Streaming is Probably The Future, Still Doesn’t Care
(14) Rolling Stone Spotify Drops Victory Records Catalog Over Disputed Royalties