Is Spotify’s business model really solid?

Spotify has unscrewed the stock market and raised concerns about the profitability of its business model. What do these difficulties say about the solidity of the music streaming business?

Can the Swedish music streaming giant get caught up in the same turmoil as the Netflix video giant? Due to persistent concerns about the market share and the profitability of the model, which has been unscrewing for several months Spotify Is he one of those digital giants with clay feet?

The Swedish music platform is one of the three players that entered the music streaming market in the 2000s, alongside Deezer in France, which was launched in 2007, and American Rhapsody, which was born in 2001. Daniel Ek When Ludwig Strigeus It comes from new technology. They met at uTorrent, one of the largest peer-to-peer file sharing sites. This highly tech-savvy skill played a major role in fueling early Spotify. But what are the challenges now? Author of Benchmark Essay on Music Streaming Market, Boulevard du stream: Free music from mp3s to Deezer (Castor Music, 2017) Journalist Sophia Fanen Analyze L’ADN’s Spotify economic model.

What are the major milestones in Spotify’s history, from its founding as a Swedish startup in 2006 to its IPO in 2018?

Sophian Fanen : Spotify is now the default music streaming platform, Or rather by opportunity. Initially, the two founders wanted to pool their technical skills and aimed to build a streaming model. Then check all sectors such as movies, video games, music and more. In the early 2000s, it was music that seemed to be the most mature field for them. Their first move is to be in a niche position. They are aimed at purists and music lovers above all else. To access the platform and its catalog, you need to run the co-option model.

I position the second great moment from 2014 to 2015, it’s Switch to playlist.. Playlists are the heart of the reactor, the essence of streaming. After that, the platform was no longer a content host or a simple listening infrastructure, Spotify will be the media..Entry into the American market, climaxIPO ((((Listed directly, published via nldr) In 2018, we’ll show you another big step in deploying the Spotify model. The United States is the largest market in the world, but it is also the most scrutinized market by the media.That’s why Spotify chooses an IPO New York Stock Exchange Nevertheless, it is not London, the center of the European market.

What are the costs Spotify faces to stay competitive?

Like any digital platform, Spotify should assume Technology operating costs : To not only host music content, but also transfer them to access high quality bandwidth.In this regard, the storage model is peer to peer We are now able to respond more efficiently and quickly than our early competitors. Spotify also has to spend a lot of money to maintainErgonomics of the platform Use a single web and desktop client for all markets. Of course, marketing is a big cost.Like any other company in a market conquest situation, Spotify Revolutionize your use Then look for that user. This capture strategy is very expensive and the company is investing heavily in content on a global scale. the License cost Also, it is inevitable. Access to major catalogs is renegotiated approximately every three years. We are talking about hundreds of millions of dollars.

American site information In a recent article, I mentioned that music streaming is a bad business model. Need to prove he’s right?

The economic model of the music streaming platform was determined by the majors, not the platform itself. It has been criticized, but so far no one has questioned it, as everyone has benefited from it. The digital revolution in this sector is complete in the sense that music is a safe asset and an installed use of streaming.However The source of growth is huge.. The world is vast and the music business is limited to 10 markets. The challenge for Spotify is to conquer other markets such as Mexico, Brazil, Nigeria, China and India. It’s a huge but immature market. The streaming business model is incomplete, but it’s a solid business..

This article focuses on the accounting games operated by the platform between the time the platform receives the subscription and the time it pays the rights owner a share. How does this reveal a vulnerability in Spotify’s economic model?

Spotify uses a very classic accounting trick. The platform collects monthly subscriptions, but pays rights holders quarterly. Therefore, you have 3 months of cash to manage your funds, generate dividends and invest. Obviously, she has been enjoying the benefits for three months without paying for this benefit. But it’s ultimately a classic mechanism between suppliers and customers.What the article points to information,that is This accounting trick should not be the alpha and omega of the platform’s investment strategy.. From a financial investor’s point of view, this indicates a vulnerability. However, majors need to know that they will use the exact same process by paying the artist by the semester. Therefore, this cascading of profits runs behind the artist.

Wouldn’t this also highlight the difficulty of securing profitability?

Spotify hides a lot behind the pseudo-lack of profitability.. It’s a comfortable speech for giants to enter the market, face majors, and pass on the fragile little things in the industry, but it’s a marketing speech. Indeed, the value of a company on the stock market fluctuates like any technology stock. Market uncertainties indicate that music streaming platforms are trapped in malicious intent between future and current moderation obligations, as well as the need for growth and strengthening of the legislative framework. The following legislative packages are mentioned here: DMA-DSA regulation At the European level, it regulates the platform more tightly. Or a US copyright directive. But the money is there and the total is huge. Music streaming is a safe asset and, unlike other sectors, has become more powerful from a pandemic.

Are the similarities with the Netflix model relevant, the ever-increasing costs, and the broad foundation that makes new competitors formidable?

In fact, Spotify faces the same problems that Netflix experienced.On the side of new competitors, Google has finally effectively penetrated the pay music market. YouTube-Premium.. Amazon has a very positive position in Amazon Music, Apple is Apple Music and Tencent is a must in the Chinese market. These competitors have one thing in common. That is, the provision of music is a secondary element of business... Music streaming allows Apple to sell computers and phones, and Amazon to sell Prime and our data. As for Tencent, they sell access to the central platform and the Chinese market. By the way, Spotify is one of the only native music giants that don’t actually sell music. Spotify sells easy, guided access to playlists. In other words, it is an algorithmic recommendation.

What distribution strategy did Spotify implement to broaden the foundation of the model?

Attempts to develop a voice assistant have failed.The company communicates today “Car Thing” project to respond to attempts to enter the car market by natively installing Spotify on all car radios.. Similar projects are being rolled out for the Hi-Fi market, but the most important diversification move in recent years is podcasts. It is a witness to a fairly clever strategy that made it possible to kill three birds with one stone.

How was pivoting to podcasting a winning strategy for the company?

In terms of marketing and advertising, the diversification of podcasts has opened the door to new advertisers who are not accessible by music alone. Advertising revenue in 2021 increased by 62%, which is enormous. They mainly come from podcast licenses negotiated with heavy hitters like Joe Rogan. On the development side, this strategy has made it possible to find new subscribers in distant circles. Early adopters Music lover. in the end, This allows the platform to break away from its reliance on music and rights owners. The Neil Young case has come to explain the fact that artistic or moral considerations can “hinder” business. And from a rigorous accounting perspective, rewards to rightsholders are expensive for the platform. By developing the platform for podcasting, we will reduce the cost of music. Spotify somehow reversed the balance of power: Musicians can no longer do without a platform, but without music..

Recent controversy over podcasts Joe Rogan Experience And wouldn’t that star host, bound by more than $ 100 million in contracts with the platform, undermine this strategy?

If Spotify puts 100 million on the table, that’s because this type of license can generate more. Yes, you have to pay the cost from an image point of view, but in the medium term, the profit remains greater than the potential loss.

What are Spotify’s long-term options: Are you looking to focus on acquisitions?

Like Netflix, Spotify has started War of status with new rivals to conquer non-Western markets.. You really have to take into account the idea of ​​vulnerabilities in your model. The main weakness in my opinion is the fact that Spotify isn’t based on its market, and the company doesn’t own the raw material, the music, forcing a permanent movement. But in this long-distance race, Spotify knows how to surround itself. The company has already begun to move closer to Tencent in China. This movement can be interpreted in two ways. On the Tencent side, this could indicate a desire to delay the entry of one of its major competitors into China. On the Spotify side, it can be seen as the first step towards concentration. Tencent is one of the big players to be on your side if you want to win the fierce battle of music streaming.