The Current State of Spotify

Whenever you feel lonely or depressed, joyful, or crazy, music can be your best friend and give you a feeling of heaven. As Plato said, “Music gives a soul to the universe, wings to the mind, flight to the imagination and life to everything.” Spotify has both premium and free versions that make it easier for you to stream music.

Spotify’s incumbent CEO, Daniel Ek, and Martin Lorentzson established Spotify in 2006. Then they launched it in 2008 with the belief that music should be universally available.

Spotify is ideal for you if you prefer to have an experience of any all-rounder music streaming platform. You can also share your playlists with friends.

How Spotify Manages Its Vast Online Presence

Spotify reigns as the king of streaming music, with over 50 million songs available to keep your ears entertained. Here’s how it does that:

Its goal is to enable 1 million artists to live off on the platform. They generated over $7.9 billion in revenues in 2019, with 90% being from premium memberships. 

The remaining 10% was supported by advertising. Spotify hopes to produce a gross margin somewhere between 30% and 35% throughout its lifetime. Its 2017 gross margin was 21%, showing astounding progress toward that goal.

Current Business Model of Spotify

Spotify is a two-sided marketplace that joins artists with fans to drive music on a wide scale. It operates a free ad-supported service, with an option of a paid membership. 

It’s marking direct licensing deals with some famous artists. It’s also testing the capability to allow others to transfer with ease to its platform. 

The company pays approximately 70% of its income for royalties to the companies and artists that hold the rights to the melodies. Spotify’s artists’ page explains that there is an average per-stream payout to the rights’ holders between $0.0084 and $0.006. 

Spotify’s Marketing Strategy

It uses four primary marketing strategies for its subscribers. Check them out:

  • Brand Marketing:

It is made up of both online and offline brand promoting campaigns.

  • Marketing for Artists: 

Spotify artist marketing program uses billboards, distinct types of conventional media, and digital outlets to feature artists and their work.

  • Premium Service Discounts: 

Spotify offers bi-annual campaigns. It discounts its membership offers with a three (3) month subscription to the Premium service. Those campaigns have proven influential in driving the development of paid memberships.

  • Conversion Marketing:

Ad-supported users get the feature of important highlights that encourage them to convert to its membership offers. 

The ad-supported service is the primary funnel that drives over 60% of Spotify Premium Subscribers!

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Source: garyfox.co

Spotify’s business model relies on the growth of new users. Its future growth potential will come from new business model innovations; it looks like it poses a threat to record labels.

Spotify Subscription Base

Spotify is a Swedish company, available in 92 nations. These are  the Americas, parts of Asia, Western Europe, Australia, and its encompassing islands. 

Recently, Spotify launched its service in 13 new eastern European markets. These are Belarus, Albania, Bosnia & Herzegovina, and Croatia. Other Eastern European markets include Kosovo, Kazakhstan, North Macedonia, Moldova, Montenegro, Slovenia, Serbia, Ukraine, and Russia. 

The recent additions bring the number of countries in which Spotify adds 250 million potential listeners to its entire addressable market. Unfortunately, there still are some significant holes in its coverage. For example, the service is not currently available in South Korea.

In April 2020, Spotify had 130 million global premium subscribers. This is from 100 million in the relevant quarter of 2019. Its subscriber base has dramatically increased since mid-2017. 

Now, in July 2020, Spotify reports 286 million active month-to-month users where 133 million are premium users. Year-on-year, it’s a 69 million increment in users (32%), and 30 million increments in subscribers (30%). This increment is a reasonably substantial growth rate.

Source: Statista

Spotify’s Incredible Services

Spotify is the pioneer in the music-streaming world, and it’s the most popular one.  It offers various curated music discovery services, including its Discover Weekly playlist. Also, it’s continually executing fresh ones, for example, Stations. 

The service’s (now optional) Facebook connection also makes sharing music on Spotify easier than its rivals. It allows you to send a track or album and enjoy listening to playlists with friends. You can even check what your Facebook friends are currently listening to.

There is also a newly announced Group Session, which enables over one user to add to playlists on the go. You can find it most useful during parties. It’s a massive collection of community-driven playlists that implies you can discover glorious music for any state of mind, activity, or holiday.

Spotify also has user software available for macOS, Windows, Android, and iOS smartphones and tablets. It likewise offers an exclusive convention known as “Spotify Connect”. This lets you listen to music through a wide range of entertainment systems, including speakers, receivers, smartwatches, TVs, or even cars. 

It also has a web player for the individuals who can’t or don’t want to download any application. Before April 2020 though, they restricted all users to 10,000 songs in their library. Once the limit is reached, users would get an “Epic Collection Friend” notification. Then they would not have the option to save more music to their music library. 

Also, playlists are now arbitrarily removed from older playlists from the users’ library. However, Spotify removed this restriction later on.

Competition – Here’s How Spotify Manages to Rule

We know Apple as one of Spotify’s greatest adversaries. There is a nearby race between Spotify Premium and Apple Music. 

However, Spotify wins on the grounds of having a fun, extensive catalog, best device compatibility, and an easy-to-use interface. Spotify claims a 35% market share of the overall industry. 

Other competitors like Apple Music and Amazon Music have 19% and 15% respectively, out of the 305 million total global streaming service memberships. 

Tencent Music logs a noteworthy 11%, regardless of its substantial domestic focus, while YouTube clocks at 6%. The last figure is additionally impressive given the service is principally connected with free, ad-supported content. 

Getting individuals to pay for such services is a noted hurdle. Without paying a dime, music lovers can still stream over Spotify Connect to various gadgets. 

Here’s the best part:

You are not required to submit your credit card number to use Spotify Connect.

 

Source: Counterpoint Research

In nations greatly affected by the COVID-19 pandemic though, Spotify has shown a decline in users in late February. However, it has shown a recovery. 

Its Family Plan is more costly than Apple Music though. But despite the expanding rivalry, Spotify is still the head of the pack for streaming music.

Choose the Best Spotify Subscription for You

Spotify comes in two primary structures – Premium and free.

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Spotify Premium costs  £9.99/$9.99 every month. This includes access to features such as advertisement-free streaming, Spotify Connect, etc. 

If many individuals in your home use Spotify, you should consider Premium for Family. It offers access to six people to their own unique Spotify account under one bill. 

All users need to live at the same location so that it becomes a package. It’s a decent way to split the expense. At £14.99/$14.99, Premium for Family is quite cheaper compared to a standard Premium Plan.

For students, there’s a discounted monthly plan that costs just £4.99/$4.99. With the Spotify free plan, you can access all playlists, find new music, and even share tunes with companions.  

You can also skirt up to six times per hour. You can likewise play any playlist, album, collection, or artist while in Shuffle Play mode.

Source: Spotify

Conclusion: Short-Term and Long-Term Plans

Spotify works hard to profit by one of the most significant brand’s relationships with its subscribers – onboarding. 

The company features its efforts to establish itself as a marketplace where performers can reach out to fans directly. It also helps performers by working through a music label. 

Spotify’s initial progress in the zone is promising, having grown for Artists platform to 200,000 musicians. 

They’re building various tools to help artists promote and market their songs, albums, live shows, and merchandise. It’s similar to assembling career management tools for independent artists. 

Eventually, Spotify aims at substituting the record mark for many musicians. That would cut down on royalty payments because there wouldn’t be any third party taking its cut. 

Spotify is happy, the artists are happy, and everyone who doesn’t work for a record label wins.

Spotify’s Finances

Spotify’s income for the 1st quarter of 2020 added up to $2 billion. A large part of this entirety, $1.84 billion, originated from Spotify Premium subscribers. 

Gross profit in the same quarter added up to $511 million, with an operating loss of $18 million. Both areas are showing steady progress. Investors should expect that Spotify’s gross margin will continue walking higher over the long haul. 

However, there will be bumpiness as it runs promotional campaigns consistently, so investors should give closer attention to the year-over-year patterns. 

Also, Spotify shouldn’t assume that users won’t second-guess their choice to upgrade. Instead, they should find ways to remind them of what they’re paying for.

In April 2018, Spotify declared a discounted entertainment package with video-on-demand platform Hulu. It incorporated limited rates for college understudies. 

On 5 February 2020, Spotify, yet again announced its intent to gain Bill Simmons’ sports and pop culture blog and podcast. It (‘The Ringer’) went for an undisclosed sum. 

They announced the acquisition of the license to ‘The Joe Rogan Experience’ on 19 May 2020. The estimation of the deal is allegedly over $100 million. Spotify’s shares increased 7% by 20 May following the declaration.

Also, Spotify Teamed up with Netflix and ESPN to clergyman digital recordings around Netflix’s Michael Jordan documentary on 1 May 2020.

Finally, what makes Spotify such an intense competitor?  

Simply, the company knows how to keep customers.

Spotify revealed that its subscription rate has only improved since then (by over 50 premise focuses). 

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