Spotify: Face the music (Update 2025)
After 16 years of remarkable growth paired with continuous losses, Spotify finally reported its first-ever annual profit in 2024. That year, the company earned €1.118 billion on record revenues of €15.7 billion. But how did it get there? And, more importantly, how sustainable is that success?
This case explores Spotify’s business model and its impact on the wider music industry, focusing on the shifts that finally pushed the company into profitability: staff layoffs, price increases, a reworked podcasting strategy, diversification into video and audiobooks, and a controversial plan to reduce royalty payments in the U.S. By early 2025, Spotify had reached new highs, with 678 million monthly active users, including 268 million paying subscribers.
Yet the company still faced challenges: the backlash from artists and even labels over royalties, the higher costs of competing with YouTube in video podcasts, pricing pressures, and the disruptive potential of AI. Spotify had been very actively experimenting with the technology, but this was not only a powerful tool for personalization and automation but also a potential source of headaches, with AI-generated content increasingly flooding the platform.
Despite these challenges, CEO Daniel Ek was confied about achieveing sustainable growth, driving innovation, and delivering value to all the company's stakeholders. The key question remains: Can Spotify stay profitable, or was 2024 an outlier? And what can the company do to ensure long-term profitability?
What material is included in this case:
Description
After 16 years of remarkable growth paired with continuous losses, Spotify finally reported its first-ever annual profit in 2024. That year, the company earned €1.118 billion on record revenues of €15.7 billion. But how did it get there? And, more importantly, how sustainable is that success?
This case explores Spotify’s business model and its impact on the wider music industry, focusing on the shifts that finally pushed the company into profitability: staff layoffs, price increases, a reworked podcasting strategy, diversification into video and audiobooks, and a controversial plan to reduce royalty payments in the U.S. By early 2025, Spotify had reached new highs, with 678 million monthly active users, including 268 million paying subscribers.
Yet the company still faced challenges: the backlash from artists and even labels over royalties, the higher costs of competing with YouTube in video podcasts, pricing pressures, and the disruptive potential of AI. Spotify had been very actively experimenting with the technology, but this was not only a powerful tool for personalization and automation but also a potential source of headaches, with AI-generated content increasingly flooding the platform.
Despite these challenges, CEO Daniel Ek was confied about achieveing sustainable growth, driving innovation, and delivering value to all the company's stakeholders. The key question remains: Can Spotify stay profitable, or was 2024 an outlier? And what can the company do to ensure long-term profitability?
Learning Objective
This case was written for courses in strategic management; in particular, those dealing with competitive strategy and platform business models. 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 for analyzing the following topics:
- How the introduction of new business models affects the structure of an industry.
- The power of different players in a value chain and the relationships that are established between them.
- 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 competitive challenges startup companies face in the digital age. The case discusses elements such as market disruption, formulation and reformulation of the service offered, and obtaining funding.
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