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Presentation -An Analysis of Spotify’s Business Model and the Competitive Trends and Current Debates Surrounding the Global Music Streaming Industry

An Analysis of Spotify’s Business Model and the Competitive Trends and...

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Media Economics

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Bournemouth University

Academic year: 2017/2018

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An Analysis of Spotify’s Business Model and the

Competitive Trends and Current Debates Surrounding

the Global Music Streaming Industry

Submitted by:

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana

Concerto Live | Proposal Name Goes Here 2

» Key aspects of Spotify’s business

model

» Music streaming industry’s competitive

trends

» Current debates surrounding global

online music streaming

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 02

Concerto Live | Proposal Name Goes Here 4

Music streaming industry rapidly

developing

Core business of record companies has

changed

2001 saw the introduction of BitTorrent,

Napster and Pirate Bay

Large amount of consumers were NOT

paying for music

Global Online Music Streaming

History

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 04

Business Model

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 05

Concerto Live | Proposal Name Goes Here 7

Content

Creation

Production Distribution Exhibition

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 07

####### Source: Albarran 2010

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana Concerto Live | Proposal Name Goes Here 8 08

Concerto Live | Proposal Name Goes Here 10

Spotify understands consumers better

than competitors

Embraced concept of ‘free drives paid’
Users invest significant amount of time on

application (“use-value”)

Easy to access and share with friends

Business Model

How can Spotify make money?

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 10

Concerto Live | Proposal Name Goes Here 11

Application is simple, easy to use and

install

Available across a number of devices e.

computers, smart phones and SMART cars

Users see the ‘use-value’ come into play

(Strinati 2002)

Business Model

Why are users paying?

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 11

Concerto Live | Proposal Name Goes Here 13

Competitive Trends

Current Positioning

To t a l users 2013: 36m free users and 8m paying subscribers
Total users 2014: 50m free users and 15m paying subscribers
Greatest cost = royalties paid out to music right-holders!

2011: 97% of revenues 2012: 90% of revenues 2013: 82% of revenues 2014: 70% of revenues

Year Revenue Net Profit (£)

2012 324 -11m

2013 529 2

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 13

Concerto Live | Proposal Name Goes Here Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 1414

Concerto Live | Proposal Name Goes Here Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 1616

Concerto Live | Proposal Name Goes Here 17

Competitive Trends

Economical

Consumers want flexibility &amp; choice
Consumer confidence on spending has

returned, but with a ‘saving-mentality’

Subscription-based models provide

value-for-money

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 17

Concerto Live | Proposal Name Goes Here 19

Competitive Trends

Social &amp; Technological

Subscription and ad-supported

streaming services have grown from 9% to 27% of digital revenues in the last five years

% of internet users using music

subscription services vs download services in 2014

Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 19

Concerto Live | Proposal Name Goes Here Emily Badger, Daniel Bambridge &amp; Armine Alaverdjana 2020

Bargaining Power of Suppliers: Medium

Suppliers forced to adopt streaming channels Concentration of popular suppliers/ labels
High supplier/competition threat

Threat of Substitutes: Medium

High number of alternative services on entertainment Limited number of substitutes offer such a comprehensive service

Threat of Potential Entrants: Low

New entrants require significant capital
Limited profitability at start-up
Very high economies of scale
Experience curve causes barriers to entry Entrants have difficulty differentiating
Expected retaliation from Apple and Google

Bargaining Power of Buyers: Medium

Huge market of potential consumers
Switching cost of monthly-fee
Customised price packages (students/ family)
Buyer competition threat: could obtain music illegally

Competitive Rivalry: Medium

Spotify has larger customer base than rivals
Powerful competitors High market growth rate to continue growth Price competition between competitors
Competitors struggle to differentiate

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