Music Streaming Service: Spotify

Spotify is a well-known music streaming service that allows users to browse through a catalog of music, licensed through multiple record labels, and create and share playlists with other users. Additionally, users are able to listen to music for free with advertisements or are also given the choice to purchase a subscription to allow for unlimited ad-free music streaming. Spotify’s largest competitors are Pandora and Apple music which offer a similar service. “Spotify along with Pandora is one of the highest grossing music app titles in the Apple App Store. In October 2017, the app generated 3.9 million U.S. dollars in revenues” (statista.com). According to the IFIPI, “global subscription streaming revenues for labels and artists rose 39% to a total of $1.57 Billion in 2014, making up about 23% of digital revenues” (MusicBusinessWorldwide.com). The app itself is gaining interest, but the artists themselves are barely getting anything in return. Recently, Spotify has lost nearly 601 million dollars in the last year. Even though Spotify operates a freemium model with a majority of its users streaming music from there mobile devices, desktops, or web browsers. Users who subscribe for a free account get ads in between tracks which are apart of The Spotify Revenue model. The wikipedia entry for spotify has charted the growth of spotify(Wikipedia.org):”In november 2011, more than 2.5 million paying subscribers signed up to its service.” This was followed with 500,000 premium users signing up since they partnered with Facebook’s “Open Graph,” which allows people to share tracks there listening to with friends.In August of 2012, there were 4 million paying subscribers responsible for a 20 million dollar revenue per month. By March 2013, Spotify had grown to about 6 million paying customers globally and about 24 million active users in all

Unlike in the ‘dot.com era’ when start ups with global aspirations launched using TV campaigns, Spotify’s growth has been a more modest approach relying on Word-Of-Mouth, PR, and co-marketing rather than big ad budgets. The service first went live in October of 2008, but kept its free service to an invitation only situation which was only in place in the final stages of development. “By introducing scarcity, the invitation only element played a vital part in the company’s rise. It helped create a vital element to the service, with users each having a 5 invites at first to share with their friends”(Billboard.com). Similarly, the launch of Spotify in the U.S. used private ‘Beta’ invites to create a buzz, so those with social media could spread the word. In order to grow its audience beyond the traditional younger audience, Spotify invested more into the campaign portion by going on live Tv. “In 2013, they launched a multiplatform campaign, with a 30 second ad spot during the season premiere of NBC’s The Voice.”

Recently though, Spotify has lost nearly 601 million dollars in the past year even though it has added millions of customers. In 2016, sales jumped about 52% to 35 billion dollars, except net loss more than doubled. The growth of spotify has lifted sales across the entire music industry, reversing years of decline due to piracy and the transition from CD’s to iTunes. The company said they “corrected errors on prior accounting statements to adjust for charges on credit cards, payment processing issues, understatements on royalties, and incorrect calculations for management statements” (Spotify.com). With the new figures they managed to add 70.7 million dollars to there net loss in 2015, On top of an original deficit of 208 million dollars. Spotify attributed the 2016 loss to the cost of debt and the impact of foreign exchange movements. “The company borrowed an additional $1 billion in March of 2016 and was later given a valuation of $13 Billion”(BloombergTechnology.com). Where’s all the money going though? Since the company began, paying record labels and others for licensing rights has been there biggest expense so far. It’s quite simple actually the more you click for a song the more the company has to pay. In february 2017, a single ad-supported stream, “Was able to generate $0.00014123 on the streaming service”(digitalmusicnews.com). This means the artist would earn around $100 in mechanical royalties after 703,581 streams. One way Spotify has managed gain popularity is by there ad placements. This year they unveiled a follow up campaign from Weiden and Kennedy New York, that again combs through listener data, but this time with an eye toward unusually named playlists. Out-of-Home placements will be up for six week in San Francisco, Los Angeles, and New York featuring creative playlist names like “sorry I lost your cat” and “I don’t know how to make a playlist.” This campaign goes a step farther though by publishing three online videos featuring musical artist such as Alessia cara, DNCE, and D.R.A.M, who all marvel at their songs’ inclusion on oddly named playlists which are then acted out in absurd ways. By putting users at the center on ads, and celebrating their peculiarities, there able to show users how they can transform this platform into their own desires. With this campaign they have the ability to progress into gretter things. Along with that, spotify is staffing up its internal creative team to fuel the brand’s early investments by using traditional channels like TV and outdoor in order to reach a broader audience. Currently, there are no industries out there where the distribution channels’ don’t make money. By working with the likes of Def Jam and actor Tom robbins, the brand is developing shows that rooted in music and pop culture, ushering in more users. It all amounts to spotify future-Proofing its business rather than patching up the cracks.

Despite the pressures, “the streaming service boasts more than 100 million active users, and adding nearly two million each month”(thedrum.com). These users are then slowly being converted into paying customers. “People are coming to Spotify with a clear sense of what we offer that they want to buy,” explained spotify’s chief marketing officer Seth Farben. “When you’re a company, that has the early adopters or the hardcore music fans, go for a system they’re more familiar with. Spotify, as a company, must make sure that they’re communicating properly that you don’t need to listen all the time to get benefits.” In all, Spotify’s ability to gain customers is astonishing. Many of them have and will be listening to them for many years to come.

Works Cited

1. Spotify. (n.d.). Retrieved from https://www.spotify.com/
2. IFPI Global Music Report 2015. (2015). Music Business Worldwide. Retrieved from https://www.musicbusinessworldwide.com/wp-content/uploads/2015/04/Global-Music-Report-2015.pdf
3. Billboard Staff. (2012). Spotify Launches U.S. TV Ad Campaign During 'The Voice' Premiere. Billboard. Retrieved from https://www.billboard.com/articles/news/486160/spotify-launches-us-tv-ad-campaign-during-the-voice-premiere
4. Ingham, T. (2016). Spotify Reveals Financials: Revenues Up 80%... But Net Losses Deepen. Music Business Worldwide. Retrieved from https://www.musicbusinessworldwide.com/spotify-reveals-financials-revenues-up-80-but-net-losses-deepen/
5. Music Streaming in the U.S. - Statistics & Facts. (2022). Statista. Retrieved from https://www.statista.com/topics/2133/music-streaming/
6. Schneider, M. (2017). Spotify's Revenue Problem: Is the Freemium Model Sustainable? Digital Music News. Retrieved from https://www.digitalmusicnews.com/2017/02/15/spotify-revenue-per-stream-2017/
7. Statt, N. (2016). Spotify Tops 100 Million Users, But Just 30 Million Pay for the Privilege. The Verge. Retrieved from https://www.theverge.com/2016/6/20/11977492/spotify-100-million-users-30-million-paid-subscribers
8. Peckham, A. (2015). Spotify Loses $200 Million as Its Sales Soar to $2 Billion. Time. Retrieved from https://time.com/4029828/spotify-loses-200-million-as-its-sales-soar-to-2-billion/
9. Billboard Staff. (2011). Spotify Hits 2.5 Million Paying Subscribers. Billboard. Retrieved from https://www.billboard.com/articles/news/464023/spotify-hits-25-million-paying-subscribers
10. Denton, A. (2016). Spotify Hits 100 Million Subscribers, Sees Revenues Rise 80%. The Drum. Retrieved from https://www.thedrum.com/news/2016/06/20/spotify-hits-100-million-subscribers-sees-revenues-rise-80