Spotify: Face the Music (Update 2021)

  • Reference: SM-1709-E

  • Year: 2021

  • Number of pages: 31

  • Geographic Setting: Global

  • Publication Date: Oct 4, 2021

  • Source: IESE (España)

  • Type of Document: Case

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Description

By 2021, streaming had become "the" way to consume music, revitalizing an industry that was seeing double digit growth rates for the first time since the 1990s. And with its 155 million paid subscribers and 355 million total users, Spotify was undisputedly the most popular music streaming service in the world - for the year of 2020, it posted record revenues of 7.88 billion. Yet, despite those numbers, in all its history, Spotify had never been able to post a yearly profit. The company had an operating loss of $293 million in 2020 (with a $581 million net loss) and was projecting an operating loss of $150 - $250 million for 2021. The case goes back to review the crash of the music industry in the 2000s, when digital formats and P2P services like Napster marked the heyday of music piracy. The case details the response of the music industry to digital formats - first a hostile one and then a slow embrace as the first successful business models were developed: digital downloads first, led by Apple iTunes, and streaming later, heralded by Spotify. The case then presents the history of Spotify, its business model, and financials, before analyzing its competition. Apple Music had already gained 72 million subscribers since its launch in 2017, while Amazon Music Unlimited had reached 55 million. Both were trying to catch up with - and even surpass - Spotify with new features, exclusives, and integration with their respective ecosystems of apps, services, and devices. The case concludes by presenting Spotify's "audio strategy", which saw the company spend nearly $1 billion in podcasting companies and technologies. CEO Daniel Ek believed this content would be the future of Spotify, but some analysts were not as confident. Was the audio strategy the right plan? Did Spotify have a path to profitability?

Learning Objective

This case was written for courses in strategic management - in particular, those dealing with competitive strategy and network markets. Spotify's success and challenges, within the framework of a music industry that has seen significant disruption in the last two decades, are well suited to discussing the following key subjects: - Analyze how the introduction of new business models affects the structure of an industry. - Analyze the power of the different players in a value chain and the relationships that are established between them. - Analyze how value is created and captured in a changing ecosystem. The case can also be used in an entrepreneurship course on startup companies, highlighting the challenges startup companies face to compete in the digital age. The case discusses elements such as market disruption, formulation and reformulation of the service offered, and obtaining funding.

Keywords

Competition Digital goods Disruption music podcast Spotify streaming