Spotify: Face the Music (Update 2019) - Teaching Note

  • Reference: SMT-129-E

  • Number of pages: 16

  • Publication Date: Jul 31, 2019

  • Source: IESE (España)

  • Type of Document: Teaching Note

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In early 2019, Spotify announced an operating profit of €94 million in for the fourth quarter ofQ4 2018. The world's largestindustry leader of streaming company was for the first time approaching profitability for the first time, after a decade of massive losses. Previouslydespite its a staggering increase in revenue, which had exceededreached over $5 billion at the end of 2018, had failed to get it out of the red. By the late 2010s, streaming had become "the" way to consume music, fueling the first global sustained growth of the music industry since the 1990s. Spotify hadwas the largest streaming company in the world, with nearly 100 million subscribers and 200 million total users overall. But Spotify the company was not immune towithout threats. The case jumps back to the 1990s, in order to talk in detail about how digital formats disrupted the music industry. During these years sSeveral innovations changed the way people could acquire and listen to music, which caught the music industry off guard. Revenues cratered, and it was no't until the success of digital music downloads- - spearheaded by Apples and its iTunes store in the 2000s first decade of the 21st century-- and in particular streaming in the 2010s that the industry seemed to finally getbe on a path to recovery path. The case then moves on and describes Spotify''s features and its two business models-, free and premium-, and its underlying financials. Royalties were the biggest component of Spotify''s costs, and depended those were largely dependent on deals with the major music labels that controlling the industry- - deals that Spotify had beenwas able to renegotiate in 2018. The case then presents sets out the threats facing Spotify,. In particularly the threat fromthose presented by large digital companies like such as Apple, Amazon, and Google, which were making inroads in the streaming market. Apple in particular was claimeding to have dethroned Spotify as the top#1 music service in the United States. It was in this landscape thatwhen Spotify announced the acquisition of several podcasting publishers and creators, starting what itthey regardedcalled as an "audio bet"gamble, and expanding its catalog to include non-music related content unrelated to music. Podcasting was still a very small market, but it wasalthough growing in popularity,. and it could beObservers might asked whether Spotify could work its magic twice, growing itpodcasting aslike it had done with music. The case concludes by asking the question whether this gamblebet can improvemake Spotify's more competitiveness against its growing rivalscompetition, or whetherre there are other strategies the company cancould adopt.

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