Zoe Keating - 9 Months of Spotify (Scroll Down for Totals) - Spotify
Spotify Business Case
-
Upload
david-gorgan -
Category
Business
-
view
408 -
download
3
Transcript of Spotify Business Case
TheBeatleswouldberatherconfusedandunhappyabouttheirrevenueslivingintoday’sworldofstreamingproviders
2
Challenge Solution Result
StreamingserviceproviderTheBeatles
Spotifydoesnotcompensateusappropriately…
Howcanwegetprofitableinthefuture?
3
Challenge Solution Result
Challenge Solution Result
SpotifyMemberships
SpotifyTicketing
SpotifySessions
ConvertSpotify’susersintopayingmembers
Eitherpaying1€ toextendtrialperiodorpaying10€ tosubscribe
Thepremiumservicedoesnotaddenoughvalue
Spotify isnotappealingenough forrightholders
Offeraticketsellingservicewithbenefits forsubscribersandartist
Offerlivestreamsoffestivals/sessionsonlyforsubscribers
Executivesummary
• 5,5mnewpremiumsubs• 32mnewbasicmembers• generating€365,2m
• 2,8mnewpremiumsubs• generating€184,29m
• 1,09mnewpremiumsubs• generating€65,448m
Althoughstreamingdoesnotholdthelargestshareamongthemusicindustry’srevenueyet,itcatchesupwithgrowthratesof50%p.a.
4
• Musicdownloadsstillbiggest share• Streamingonlymakesup27%ofthecurrent
digitalmusicrevenues• BUT:Growthof51.3%inonly1year
Challenge Solution Result
Fortier(2014), http://www.stat.gouv.qc.ca/statistiques/culture/optique-culture_an.htmlIFPI(2014),http://www.ifpi.org/downloads/Digital-Music-Report-2014.pdf
Sharefromdigitalmusicinglobalmarket
• Digitalmusicrevenuesgrowingheavily(by48%since2008)
• Accounting for€5.31bnin2013
Globalrevenueindigitalmusic
67%
27%
6%
downloadingmusicfiles streaming other
Revenuesinthemusicindustryhavedecreasedoverallsince1997,however,digitalmusicrevenuesdidpartiallybalancethelosses
5
• Digitalmusicrevenuestakingoverphysicalsalesrevenues(by48%since2008)
• Accounting for€5.31bnin2013
• Ingeneraldecreasingrevenuesfromthemusicindustry
• However,digitalrevenuesdonotoutweighlossesofphysicalsalesyet
Challenge Solution Result
King(2013),http://qz.com/56998/the-music-industry-grew-last-year-for-the-first-time-since-1998/
Developmentofrevenueinmusicindustry[in€M]Compositionofglobalmusicsales
1997 2001 2005 2011
6
WhatdoesittakeforSpotifytoachievebreakeven?
NetincomeofSpotifyhascontinuouslybeennegativeinitshistory
Challenge Solution Result
-2000
-1600
-1200
-800
-400
0
400
800
1200
1600
2000
2008 2009 2010 2011 2012 2013 2014 2015 2018
millioneuros
revenue operatingcosts netincome
• Currentnetloss:€179,1m
• Spotifymustpay70%ofrevenues torightholders
• Consequence:Spotifydoesnotonlyneedtomakeadditional €179mbut€597m
Statista(2015), http://www.statista.com/statistics/244990/spotifys-revenue-and-net-income/
7
162,3ml€ lossesin2014à 541ml€ additional revenues- 378ml€ additionalexpenses(70%)=+162ml€ netincome
-2000
-1600
-1200
-800
-400
0
400
800
1200
1600
2000
2008 2009 2010 2011 2012 2013 2014 2015 2018
millioneuros
revenue operatingcosts netincome
IttakesSpotifyadditional€597mofrevenuesinordertoreachbreak-even
Challenge Solution Result
Statista(2015), http://www.statista.com/statistics/244990/spotifys-revenue-and-net-income/
• Currentnetloss:€179,1m
• Spotifymustpay70%ofrevenues torightholders
• Consequence:Spotifydoesnotonlyneedtomakeadditional €179mbut€597m
NetincomeofSpotifyhascontinuouslybeennegativeinitshistory
ThemajorweaknessofSpotifyisthatithasinallitshistoryalwaysfacednegativenetincome
8
• Paymentstorightholdersmakeupapprox.62% ofSpotify’s expenses
• 70%oftotalrevenuesgotorightholders
• 74%offreeusersonlycontribute to10% ofSpotify’s revenue in2014
• 26%Premiumuserscontribute to90%ofSpotify’s revenues in2014
Challenge Solution Result
TheGuardian(2015), http://www.theguardian.com/technology/2015/may/11/spotify-financial-results-streaming-music-profitable
756
486
Paymentstorightholders Fixedcosts
0%
20%
40%
60%
80%
100%
Shareoffree/Premiumsubscribers Shareofrevenue theycontribute
Premiumusers FreeUsers
Numberofcustomertypesandtheiraccordingrevenuegeneratedin2015
CoststructureofSpotify in2015[in€M]
9
Challenge Solution Result
Challenge Solution Result
SpotifyMemberships
SpotifyTicketing
SpotifySessions
ConvertSpotify’susersintopayingmembers
Eitherpaying1€ toextendtrialperiodorpaying10€ tosubscribe
Thepremiumservicedoesnotaddenoughvalue
Spotify isnotappealingenough forrightholders
Offeraticketsellingservicewithbenefits forsubscribersandartist
Offerlivestreamsoffestivals/sessionsonlyforsubscribers
Executivesummary
• 5,5mnewpremiumsubs• 32mnewbasicmembers• generating€365,2m
• 2,8mnewpremiumsubs• generating€184,29m
• 1,09mnewpremiumsubs• generating€65,448m
Spotifymustimproveitspricingstructureaswellasincreaseitsattractivenessinordertoreachthemainobjective;break-even
Change pricing structure
Increase of attractiveness Livestreams
Ticketing solution
Free version
Premium version
Break Even Partnering
Joint-Ventures
M&A
Challenge Solution Result
Organizing own festivals
IPO
Adding videos
• AdifferentpricingstructurewillallowSpotifytoincreasethesubscriptions
• Increasing subscriptionprice istoorisky
• Decreasing subscriptionprice doesnotmeetourgoal
• Partnering (joint-ventures,M&AorIPO)doesnot solveprofitabilityproblem
• Spotifymustworkonitsattractivenessforrightholdersandsubscribers
• Organizingownfestivals andaddingmusicvideoswouldbetooexpensive (hugeservercosts)
VALUATION
10
• AdifferentpricingstructurewillallowSpotifytoincreasethesubscriptions
• Increasing subscriptionprice istoorisky
• Decreasing subscriptionprice doesnotmeetourgoal
• Partnering (joint-ventures,M&AorIPO)doesnot solveprofitabilityproblem
• Spotifymustworkonitsattractivenessforrightholdersandsubscribers
• Organizingownfestivals andaddingmusicvideoswouldbetooexpensive (hugeservercosts)
11
Change pricing structure
Increase of attractiveness Livestreams
Ticketing solution
Free version
Premium version
Break Even Partnering
Joint-Ventures
M&A
VALUATION
Challenge Solution Result
Organizing own festivals
IPO
Adding videos
Spotifymustimproveitspricingstructureaswellasincreaseitsattractivenessinordertoreachthemainobjective;break-even
Spotifystillpayssmallpay-outstorightholderscomparedwithotherstreamingplatforms
13
Challenge Solution Result
Statusquo:
• Spotify spending 70%ofitsgrossincome
• RightholdersDecember2013:• Spotify paysbetween
€0,0057- €0,0079perstream• iTunes pays €0,65pertrack
HowwillSpotifycompensaterightholdersbetterwhileaimingforprofitability?
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
Per-stream
payou
t(€)
Averageper-streampayouts
TheminorityofpremiumuserscontributespracticallyalltherevenuesofSpotify
14
0%
20%
40%
60%
80%
100%
Shareoffree/Premiumsubscribers
Shareofrevenue theycontribute
Numberofcustomertypesandtheiraccordingrevenuegeneratedin2015
Premiumusers FreeUsers
Challenge Solution Result
26% ofpremiumuserscontributed90%ofSpotify’srevenues in2015
Inordertobeprofitabletherearetwosolutionstogeneraterevenue:
• Generatemorerevenuebyads• Increaseannualsubscriptions
Premium
14
Wecreatedanonlinesurveyinordertofindoutthewillingness topayofSpotifycustomers,iftherewouldnotbeafreemembershipanymore
15
Questionsasked:
1) WouldyoupayCHF12.95/€9.99forSpotifyifyoucouldnotuseitforfree anymore?
2)Ifnot,whatotherchannelwouldyouusetolistentomusic?
Results:(217participants)
Challenge Solution Result
71% 29%No
Yes
Youtube AppleMusic iTunes
Soundcloud Torrents Other
NewpricingstrategywillhelpSpotifytogetextrarevenues
16
Premiummembership:
€10everymonth
Basicmembership:
€1every3monthFreeaccount
Challenge Solution Result
• Basicmembershipwithlowfeereplacingfreeaccount
• Basicfeesshalloutweighlossesfromlessad-revenues
• Incentive tosubscribeforpremium ishigher
Newpricingstrategywillrequireatleast30millionbasicmembershipsinordertooutweighlossesfromlessad-revenue
17
Challenge Solution Result
75millionusers
20millionpremiumsubs
55millionfreeusers
Assumption:Spotify’srevenuein2015:€1.428bn
• Revenuefrompremiumsubs:€1.296bn• Revenuefromfreeusers:€132m
Oldpricingstrategy Newpricingstrategy
?millionusers
?millionpremiumsubs
?millionbasicmembers
Basicfeesshalloutweighlossesfromlessad-revenues:
• 30mbasicmembershipusersrequired toachievebreakeven(outweighlosses)
Tenpercentofthecurrentfreeuserssubscribing forSpotifywillincreaseitsrevenuesby358,4ml€ withinthenext3year
18
Challenge Solution Result
75millionusers
20millionpremiumsubs
55millionfreeusers
Assumption:Spotify’srevenuein2015:€1.428bn
• Revenuefrompremiumsubs:€1.296bn• Revenuefromfreeusers:€132m
Oldpricingstrategy Newpricingstrategy
55,5millionusers
25,5millionpremiumsubs
32millionbasicmembers
Assumption:Spotify’srevenuein2018:€1.7932bn
• Revenuefromsubscriptions:€1.6524bn• Revenuefrombasicmembers:€140,8m
+€365,2m
1919
ThepricingstrategyincreasesSpotify’srevenueby€365,2m
Challenge Solution Result
5,5mnewpremiumsubs &32millionbasicmembers
throughSpotifyMemberships
€356,4mrevenues+€140,8mrevenues
€132mrevenues(noadsforfreeusers)
€365,2mnetrevenue
SPOTIFYOFFERSTHETICKET
PLATFORMATALOWPROFITMARGIN
ITISCONVENIENTFORALLTHE
ARTISTSTOSELLTHROUGHSPOTIFY
OTHERCOMPETITORS
CANNOTAFFORDSUCHALOWCOMMISSION
THISWILLGIVESPOTIFYLEVERAGETONEGOTIATE
THATTHETICKETSAREAVAILABLE ONSPOTIFYEARLIER
INCENTIVEFORUSERSTOBECOME
SUBSCRIBERS
Challenge Solution Result
20
SpotifyTicketingwillgainleveragebyrequiringalowprofitmarginfortheserviceandthenuseitnegotiateticketsavailableearlieronSpotify
SPOTIFYTICKETSELLING
PLATFORM
RIGHTHOLDERS PREMIUMUSERS
SavemoneyReachalotoffansThemoreticketssoldthroughSpotify thebetter
GetticketsinadvanceFeedsaboutthetoursIntegratedcalendarDirectpayment
üüüü
üü
SpotifybecomesthefirstticketplatformTheuserswillhaveanincentivetobecomepremiumMoreappealing forrightholders/artistsbecauseofa“self-marketing”function
üüü
ü
Challenge Solution Result
ArtistscanselltheirticketswithlesscostsandpremiumuserscanpurchaseticketsinadvancewhileSpotifygainsmoresubscriptions
22
*11%forthefirst50’000,andthen6%
Generalidea• Possibility fortheartiststosellticketsviaSpotify• Spotifywilloffertheservicefora7%profitmargin• Negotiation(ticketsavailabletwodaysinadvance)
Challenge Solution Result
23https://seatgeek.com/tba/music/concert-ticket-fees/
Spotifyisabletopositionitselfasacheapandsmartsolutionforartiststoselltheirconcerttickets– givinganincentiveforuserstosubscribe
0
5
10
15
Ebay*
Spotify
TicketNetwork
TicketLiquidator
Vividseats
StubHub
Ticketsnow
Razogator
Profitmargin ofvarious onlineticketing providers
Detailedconcept• Everyone isabletobuyticketsthrough theplatform• Onlysubscriberswillhaveaccesstothepre-sale
Consequence• Incentive foruserstobecomesubscribers
Spotifywillintegratetheticketingintoitsplatform– user-friendly ticketing
24
WhatSpotifyoffers…• Promotion ofWorldTours• Ticketselling• Spotifyexclusivefeeds
Challenge Solution Result
Howuserswillproceed…• Acquiredviaplatform• Buyersreceiveelectronicticket
Spotifycanimplementtheticketingwithoutincurring highcosts
25
Challenge Solution Result
Softwaredevelopment*§ Focusthedevelopment taskforceonthesoftware
Sales§ Adding ticketpossibility inpre-existingcontracts*§ Creationofticketingdepartments
Marketing*§ Marketing through socialmediaandpressreleases
Expensesandresources
allocationforSpotifyTicketing
Totalcostperyear=€1,225,760
*Thesetasksaregoingtobeimplementedbyalreadyexistingemployees – thereforethereisnoadditional costs
Thefinancialgoaloftheticketingplatformistobebreak-even
26
Challenge Solution Result
Revenuepossibilityfromticketing
• Averageseatsperconcerts:13’000
• Averageticketpriceformainartists:78€
• Byselling10% oftheticketsthroughSpotifytherevenueis7’098€ forasingleconcerts
• Inorder tocoveritscostsSpotifyhastobeabletosell10%of theticketsfor575concertsaround theworld
10%oftheticketsof575concertssuccessfullysoldtoreachthebreakevenpoint
KeyMessage
TheticketingwillmakeSpotifyattractiveforallstakeholders
27
Challenge Solution Result
Benefitforartists Benefitforpremiumsubscribers
• Promotion ofthetourthroughSpotify
• Advantagerateof7%
• Possibility tosaveupto3’194’919€ pertour
• Exclusiveinsightsfeedsfromtheartists
• Possibilityofpurchasing theticketstwodaysinadvance
• Directpaymentpossibility
• E-ticketsdirectlyonyoure-mail
Premium
2828
Throughticketing,Spotifywillgenerate€184,29mnetrevenue
Challenge Solution Result
2,8mnewsubscribers throughSpotifyTicketing €181,44mrevenues
€1,225mimplementationcosts
€184,29mnetrevenue
€4,083m(margin575concerts)
Spotifyimplementationisbasedonconvincingartistsanddevelopthesoftware
29
Challenge Solution Result
Addclausestocontract
Developthesoftware
CreateticketSalesDepartment
Instructionofexistingemployees
Startofferingtheservice
1
2
3
4
5
Spotifyneedsmoreuniquepremium-onlyfeatures
31
• Pricing structuredtoenableprofitability,butimportant togrowpremiumbase
• Sofaronlyad-free,offlinemode,enhancedsoundqualityandconnectivityfeaturesonlyforpremium
• Morefeaturesneededthataren‘ttotallyfocusedonsound
Challenge Solution Result
Spotifypremiumwilloffermorebenefitstocustomers,suchasSpotifyTicketingandSpotifySessions
32
Nomoreads.Youwon’tbeinterrupted.
Tonsofmusic,instantly.Hearanysongyouwant.
Takeyourcollectionoffline.Listentosongsanywhere.
Easyontheears.Evenmoresoundquality.
SpotifyTicketing.Comeevenclosertotheartists.
SpotifySessions.Getexclusiveinsights.
Challenge Solution Result
Spotify (2015), https://www.spotify.com/us/student/
33
Challenge Solution Result
• Whilerecordedmusicrevenuesaregoingdown, livemusicrevenuesaregrowing
• Risingnumberoffestivalsandconcertswithbettertechnologyandnewformats
Livemusicrevenueishugelygrowing,soareconcertsandfestivals
Trojan360(2014), http://www.trojan360.com/the-power-of-live-music-2/
Growinglivemusicrevenues
34
• Tomorrowland biggestelectronicmusicfestivalintheworld
• Grew4500%inattendancesinceitsinceptionin2005
• Veryyoungaudience,sameasSpotify
• Onlinelivestreamssofarforfree
Electronic musicfestivalssuchasTomorrowland areasuccessstory
34
Challenge Solution Result
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
400.000
450.000
+4500%
20152014201320122010 20112007 2008 20092006
AttendanceGrowthTomorrowland
DancingAstronaut(2013),http://www.dancingastronaut.com/2013/07/through-the-looking-glass-the-history-of-tomorrowland/YourEDM (2015), http://www.youredm.com/2015/07/16/tomorrowland-past-present-future/
3535
SpotifySessionsisthewaytointegratefestivalexperiencesintoSpotify
Challenge Solution Result
• Ownsubpageonthemobileanddesktopapp
• Promoting upcomingfestivals andnearbyconcerts (directlinktobuyfestivalticketsandtoSpotifyTickets)
• Liveeventsonsoundlessauto-play
• Audio(listen)feature
3636
AllsessionswillbeSpotify-exclusive
Challenge Solution Result
LiveSessionswithartists
• Ingeneralthelivestreams onSpotifyareliveandshouldbeexclusive
• Thegoalistomakeusersfeellikethey‘remissingoutonsomethingiftheydon‘tregister
Spotifycanimplementtheticketingwithoutincurring highcosts
37
Challenge Solution Result
Softwaredevelopment*• Formingadeveloper squadtodeveloplivestreaming
software
Sales• Hiringnewsalespeople• Negotiateexclusivelivestreamdeals
Marketing*• Marketing through socialmediaandpressreleases
Totalcostperyear=€5.184m
Expensesandresources
allocationforSpotifySessions
*Thesetasksaregoingtobeimplementedbyalreadyexistingemployees – thereforetherearenoadditionalcosts
3838
Wewillacquirebigfestivalsfirstandthenimplementourownsolution
Challenge Solution Result
Hiresalespeople forpartnerships
Acquire exclusive partnershipswithfestivals/artists(withalreadyexistinglivestreams)
Establish Spotifyasknownlivestream partner
Finishdevelopmentofownlivestreamsoftware
Offeringsoftwareandexpandingtofestivals/artistswithoutexisting livestreams
1
2
3
4
5
3939
SpotifySessionswillgenerate€65,448mnetrevenue
Challenge Solution Result
1,09mnewsubscribersthroughSpotifySessions €70,632mrevenues
€5,184mcosts forSpotifySessions
€65,448mnetrevenue
Spotifywillachievebreakevenbygenerating€597mofadditionalrevenue
40
Challenge Solution Result
FinancialImpact
Additional€365,2m
Additional€184,29m(2,8madditionalsubscribers)
Additional€65,448m(1,09madditionalsubscribers)
€597m
41
Challenge Solution Result
Challenge Solution Result
SpotifyMemberships
SpotifyTicketing
SpotifySessions
ConvertSpotify’susersintopayingmembers
Eitherpaying1€ toextendtrialperiodorpaying10€ tosubscribe
Thepremiumservicedoesnotaddenoughvalue
Spotify isnotappealingenough forrightholders
Offeraticketsellingservicewithbenefits forsubscribersandartist
Offerlivestreamsoffestivals/sessionsonlyforsubscribers
Executivesummary
• 5,5mnewpremiumsubs• 32mnewbasicmembers• generating€365,2m
• 2,8mnewpremiumsubs• generating€184,29m
• 1,09mnewpremiumsubs• generating€65,448m
Weidentifiedtherisksofmainlyhavingtoolittleimpactthathavetobetakenintoaccount
Risk Probability Impact Mitigation
• Toofewfreeuserssubscribing
• Usersgoingtothecompetitors
• Furtherimprovement ofPremiumversion
• Stillofferingfunctions andservicesthatcompetitorsdonot
• Customers donotbuyticketsviaSpotify
• ArtistdonotwanttoselltheirticketsviaSpotify
• Theplatform isuser-friendly andtheycanbuyticketsinadvance
• ProfitmarginislowerandSpotify alsoofferspromotion throughtheplatform(feeds)
• Usersprefertowatchconcertslive
• Artistswon’trisktolooseincomefromconcerts
• Premiumoffer– evenifusersdidn’twanttouseit– willstillbuyit
• Installedmeasureswillgive additionalincentives andspecialdealstoartists
Low Medium High
SpotifyMemberships
SpotifyTicketing
SpotifySessions
Challenge Solution Result
42
Oursolutionwillachieveabreak-evenuntiltheendof2018
43
CorporateP&L(million €) 2015 2016 2017 2018
RevenueBase revenueExtrarevenuefromSpotifyMembershipsExtrarevenuefromSpotifyTicketing
ExtrarevenuethroughmarginExtrarevenuefromSpotifySessions
1428-----
1682,7831428146,0890,724,08313,09
1888,7481682,783127,8254,4324,08319,63
2053,1391888,74891,336,2884,08332,72
(Cost)FixedCostsRoyaltiesExtraLabourPartnerships
(1607,1)(607,5)(996,6)
--
(1791,85786)(607,5)
(1177,9481)(1,40976)
(5)
(1936,0336)(607,5)
(1322,1236)(1,40976)
(5)
(2051,10706)(607,5)
(1437,1973)(1,40976)
(5)
Operatingincome (179,1) (109,0786) (47,2856) 2,03194
(CorporateTaxof22%) - - - 0,4470268
Netincome (179,1) (109,0786) (47,2856) 1,5849132
Netincomemargin (12,5%) 0,077%
Challenge Solution Result
TradingEconomics, http://www.tradingeconomics.com/sweden/corporate-tax-rate
ArtistbenefitfromSpotify’soverallsolutionsasrevenueisgenerallyincreasing
44
Challenge Solution Result
Artistbenefitfromextra€597mrevenuescausedbythepricing
• 70%*€597m=€418,6madditionallypaidforroyalties• €1,4146bninsteadof€996mforroyalties
756
523
301131
996
20182015
Moneysp
end
onro
yalties(inm€)
+40%
2011 2012 20142013
1 415
45
Action 2016 2017 2018
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
ChangeSoftware
Communication
Contractscreation
Software development
SalesDepartment
Instructemployees
Partnerships
Establishthebrand
SoftwareDevelopment
ContractsCreation
Expansion
Spotify
Mem
berships
Spotify
Tickets
Spotify
Sessions
Preparation/Planning
Implementation
OurimplementationstartsinQ12016andwillbemainlyfinishedafterQ22017
Challenge Solution Result
CDsalesinNorthAmericahavedeclinedsignificantlyduring thelast15years
49
• CDsalesdroppedby73%inNorthAmericasince2000
• Physicalmusicisloosingrelevance• Musicindustryfacingproblemswithmonetizing
CDsalesinNorthAmerica
AminorityofPremiumuserscontributespracticallyallofSpotify’s revenues
50
SpotifycomprisesmostPremiumusersincomparisontoitscompetitors
26%ofPremiumuserscontributed90%ofSpotify’srevenuesin2014
0 100 200 300
# countries
#songs [inmio]
#Premiumusers[inmio]
#Totalusers[inmio]
Deezer
Pandora
Spotify0%
20%
40%
60%
80%
100%
Shareoffree/Premiumsubscribers Shareofrevenue theycontribute
Numberofcustomertypesandtheiraccordingrevenuegeneratedin2014
Premiumusers FreeUsers
Spotify doesnotonlygeneratessignificantlymorerevenuesbutalsobyfarthehighestnetlosscomparedtoitsmostrelevantcompetitors
51
However,Spotifybyfarhasthelargestnetlosscomparedtocompetitors
Spotifygeneratedmostrevenuesincomparisontoitscompetitorsin2014
Netprofit(loss)2014[in€M]
2
-165
-9
Sourceshttp://www.finanzen.net/bilanz_guv/Pandorahttp://winfuture.de/news,87040.htmlhttp://www.nzz.ch/finanzen/aktien/deezer-will-bis-ende-oktober-an-die-boerse-1.18630132
Revenue2014[in€M]
920.8
143
1,080
Analysisofmusicstreamingmarketshowsthatthestreamingmarketitselfisalreadyhighlyconsolidatedbutmajorthreatcomesfromillegalplatforms
52
Threat of Substitute Products
Music streaming is the cheapest legal source of music for customers
Bargaining power (suppliers) Doesn’t depend on retailers and programmers are easily available
Threat of new entrants
Entrants must take lots of legal issues into
account; existing firms already well established
Industry rivalry Music streaming market is still growing
Bargaining power (buyers) Customers have a lot of legal and illegal alternatives to Spotify
Analysisofonlineticketsalesmarketshowsthatitholdsnumerousadvantagescomparedtothemusicstreamingmarket
53
Threat of Substitute Products
Music streaming is the cheapest legal source of music for customers
Bargaining power (suppliers) No dependence on retailers and programmers are easily available
Threat of new entrants
Limited since conclusion of contracts
with right holders is complicated
Industry rivalry Comparably few providers of services
the like
Bargaining power (buyers) Hardly organized customers and
TheUSPofSpotifyisitslargeuserbaseaswellasnewopportunitiesinthesaleofconcertticketsonline
54
▪ Userbasecomprises75Mpeople
▪ Contractswithmultiple rightholdersonglobal scale
▪ Technologyenablinginstantmusicexperienceasifsavedonhard-drive
▪ Potentanddedicatedinvestors
▪ Brandpartnerships
Strenghts Weaknesses Threats Opportunities
▪ Spotify hasnevergeneratedanetprofitsofar
▪ Freecustomerscontribute lessthan10%p.a.ofrevenues
▪ Only25%ofPremiumusersgenerate90%ofrevenues
▪ Artistsarewithdrawing theirsongs fromstreamingplatformsduetolowpayment
▪ Development ofSpotify hinderedduetocompulsorycontractswithrightholders
▪ Musicstreamingoutperformsdownloadofsongsandalbums
▪ Inparallel,theconcertmarket&thusalsotheonlinesaleofticketsisbooming
Copyrightissuesprovideaneffectiveentrybarrierfornewcompetitorsonthemusicstreamingmarket
55
▪ Venture-capitalistsarenumerous andwilledtoinvestinstart-upslikeSpotifyallovertheworld
Economicimplications Socialimplications Technological implications Legalimplications
▪ Spotify’s usersareratheryoungwhiledemography tendstomoreelderlypeople
▪ Programmers cannowadaysbefoundallovertheworld
▪ Internettechnologiesdevelop furtherrapidly&Spotifymustbecapableofadapting
▪ Spotify mustalwaysconsider thereactionofrightholders inallwhatitdoesduetocopyright law
▪ Inparallel,itconstitutesentrybarriersfornewcompetitors
Backup- ComparisonoftheMainMusicStreamingServices
56
Percentageofpayingsubscribersontoal users
• Spotify 27,0%• Deezer 38,0%• Pandora 1,2%• Beatsmusic 100,0%• Kkbox 20,0%• Wiwmp 100,0%
-2.000.000
0
2.000.000
4.000.000
6.000.000
8.000.000
10.000.000
12.000.000
14.000.000
16.000.000
18.000.000
20.000.000
22.000.000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Kkbox
BeatsmusicWiMp
CostPremiumservice
Subscribers
Pandora
Spotify
Deezer
Dataoncustomers/revenueorigin(I/II)
59
• 2013: 747million€ revenuesin2013(24mlactiveusers)• 91%fromsubscriptions• 9%fromadvertisement
• 2014:1.08billion€ revenuesin2014(60millionusers,15milsubscriber)• 1.08bn€ x0,9=972mlfromsubscriptions
à1.08bn€ x0,9/15ml/10€ =6,48monthofsubscriptions• 1.08bn€ x0,1=108mlfromads
à108ml€ /45ml=2,4€
• 2015:75millionusers(20millionsubscribers)• 20ml(subscribers)x10€ x6,48=1.29bn€• 55ml(freeusers)x2,4€ =132ml€
Revenuesin2015:1.296bn+132ml=1.428bn€
Challenge Solution Result
Dataoncustomers/revenueorigin(II/II)
60
• Basicfeesshalloutweigh lossesfrom lessad-revenues
• X*2,4€ +x*1€*2=132ml€ (2*3monthusage)• X=30ml
(30ml*2,4€ +30ml*1€*2=132ml€)
• 2015:55,5millionusers(25,5millionsubscribers) (55ml*0,1=+5,5ml)• 25,5ml (subscribers)x10€ x6,48=1.6524bn€• 32ml(basicmembers)=132ml€
Revenuesin2015:1.6524bn€ +132ml€ =1.7864bn€
Challenge Solution Result
WhatdoesittakeSpotifytoachieveabreakeven?
61
Challenge Solution Result
• 2014:162,3mllosses• Weneed541’000’000additional revenuesin
2015sothat70%ofthisnumber goestoartistsand30%ofthisrevenue(162,3ml) willstaywithSpotify
Backup– Ticketingimplementationplan
64
Challenge Solution Result
Offertheservicetomajorartistsfirst
• Ownworld tours– atleast60Stops• MusicAwardNomination• Strongly followedonsocialmedia• Strongly followedonSpotify• Bigprofitfromalbum
• Sincespotify isabletosegmentitscustomers,whenaworldtourisup,theservicewillbeabletoadvertisetheeventinthecountry/area
• Majorartistusuallyfillupbigconcertshall,thereforewecanprofitmore- havinga7%profitmargin
BackUp– Implementationofthetwonewoffices
65
Challenge Solution Result
CreationofoneofficesintheUSAandEurope:
- Twopartner implementatoion projectmanager 105’208€ /year- 18externalrelationsandsales 56’400€ /year
- Support isgoing togothrough Spotify- Alreadyexistingproductdevelopment departmentisgoing toworkonthis
Totalcostperyear=1’225’760€
Benefitsfortheartist
66
Challenge Solution Result
Revenuebenefitfortheartist
• Spotifyhasaprofitmarginof7%insteadoftheaverage11,5%intheticketing industry
• 4%additionalprofitmarginforartists• Averageseatsperconcerts:13’000• Averageticketpriceformainartists:83$• 173concertsminimumperyear
13’000*0,1*83$*0,04= 4316$
4316$/0,0052=828’406additionalstreams
4316$*173=764’668$=additional1’066’669$ofrevenuesifonlymadebyspotify
BackUp- Spotifyhastomakeitsserviceappealingforrightholders
67
Streaming service payout Urgent needsStreaming platforms are not profitable for right holders
• Between0.006and0.0084eachtimeasong isplayed
• Between6and8whenatitleisheard1000times
• Royalities paidbySpotify areverylow
• Toequal1iTunespurchase,135playsinSpotifyareneeded
• Toequalthesellingofanalbum,asongneedstobepalyed 47’680timesonSpotify
• Since2013piracyhasstartedtodecline
• Maketheservicemoreappealingforrightholders
• Offerbettercompensation
• Offernewservicesfromwhichtheartistcangain
Challenge Solution Result
Backup– Whatdoartistsgain
68
Challenge Solution Result
ComparisonBetweenSpotifyandotherstreamingservices
Spotifyprofitmargin:7%
Totalrevenueperconcert*:1’014’260€
Artistrevenueafterticketcosts:943’261€
Ticketingexpenses:70’998€
Averagecompetitorsprofitmargin:11,5%
Totalrevenueperconcert*:1’014’260€
Artistrevenueafterticketingcosts:897’620€
Ticketingexpenses:116’639€
*Aconcertwith13’000ticketssold atapriceof83USD
Differenceinexpenses=45’695€
Assumingthataworldtourhas70stopsanartistcouldsaveupto3’194’919€
6969
BackUp– TicketImplementation
Challenge Solution Result
Contracts SoftwareDevelopment
NewDepartment
Instruction ofExisting
Employees
StartOfferingthe Service
• Thepossibility oftheticketingserviceisaddedtotheexistingcontracts
• Thetermswillinclude7%profitmarginandthepossibility fortheartisttotargetpotentialpurchasers
• Thetaskofintegratingthisfeatureinthealreadyexistingsoftars isgiventoprogrammersalreadyworkingforSpotify
• 20peoplearehiredtosupport therelationswiththeartistsinthissense
• TheDepartmentwillbeinNewYork
• Alreadyexistingemployees–especiallyfromtheclientsupportdeparment areinstructedonhowtosolvecertainissues
Spotifyhastomakeitsserviceappealingforrightholders
70
Spotify payoutsare too low
Streaming platforms are less profitable that downloading platforms for right
holders
Challenge Solution Result
Make the service more appealing for right holders
Spotifycanimplementtheticketingwithoutincurring highcosts
71
Challenge Solution Result
• Contractsrelatedexpenses• Softwarerelatedexpenses• Marketing relatedexpenses
Expensesoftheticketingimplementation Type ofcost LevelAdding ticketpossibility inpre-existingcontracts LowFocusthedevelopment taskforce onthesoftware LowMarketing through socialmediaandpressreleases LowCreationofticketing departments inUSAandEurope Medium
-High
Mainexpenses:Creationofoneofficeof20peopleintheUS
Totalcostperyear=1’304’000
7272
Impact
Challenge Solution Result
2,8mnewsubscribers throughSpotifyTicketing €181,44mrevenues
€1,225mimplementationcosts
€184,29mnetrevenue
€4,083m(margin575concerts)
7373
UnderstandingtheTicketingRevenues…
Challenge Solution Result
€1,225m €1,225m
+70%ofrevenues
€1,225m €2,0825m
X €1,225m+0,7*X
€4,083m €1,225m+0,7*4,084m
Revenue Expenses
€4,083m €4,083m
Backup- Whynovideos
75
Challenge Solution Result
• Hugestoringcosts(livestreamsarenotstoredafter– another reasonwhyyouhavetobepremium)
• Wedon‘twantvideosthatotherplatformshave
• VEVOwon‘tallowexclusivevideosoutsideoftheirplatform
7676
Backup- Impact
Challenge Solution Result
- OnlyAxwell ΛIngrosso LivestreamfromTomorrowland 2015:2‘000‘000 livestreamviewers
- With2otherbig festivalsperyear+arangeofexclusiveartistsessions:
- 6’000’000*0.1+3’300’000 *0.09=about 1,09mnew subscribers
Estimated1,09mnewsubscribersafterthefirstyear, growing togetherwithnumber ofnewexclusivefestivalsandgrowthof festivals
Backup- SpotifySessionsCosts
77
Challenge Solution Result
Hiringnewsalespeople:
• 1US,1Europe around92’000$each/year
Livestreampartnerships:
• Twobig, rangeofsmallones around5mio.$/year
Totalcostperyear=5’184’000$
->However,thesecostsareshrinkingafterthelivestream softwareisfinished, sinceitwillbecheapertomakeexclusivepartnershipsbecauseweofferwaymore.
7878
Backup- Implementation
Challenge Solution Result
Livestreamsoftware and
brandawareness
Acquiring fastand big
partnerships
Broadexpansion
• Firstintegrating festivalsandsessionswithalreadyexistinglivestreamstokeepcostslowandmakelivestreampartnerships
• Developownlivestreamsoftwarethrough developersquadandriseasmusiclivestreambrandthroughexistingpartnerships
• Thenexpandingontofestivalsandbigconcertswithoutanylivestreams
Backup– Benefitsforfestivals
79
Challenge Solution Result
Betterquality(example:Tomorrowland)
Addedaudienceforfestivals(bignumberofSpotifypremiumsubscribers)
Audienceisexactlytheonethatwantstobereachedby
festivals
Alreadypayingsubscribers:chanceshigherthattheycouldalsobuyaticketfor
thenextfestival
AssociationtobrandofSpotify
8080
Backup– SessionsPricing
Challenge Solution Result
• Salesandmarketingexpenses• Softwaredevelopment
ExpensesofSpotifySessions Type ofcost LevelFormingadeveloper squadfor Spotify Sessions LowMarketing through socialmediaandpressreleases LowHiringnewsalespeople tonegotiateexclusivelivestream dealswithbiggest festivalsusingexistingsalespeople
Medium-High
Mainexpenses:Hiringnewlabourandexclusivelivestream deals
Totalcostperyear=5’184’000
8181
Impact
Challenge Solution Result
1,09mnewsubscribersthroughSpotifySessions €70,632mrevenues
€5,184mcosts forSpotifySessions
€65,448mnetrevenue
8282
UnderstandingtheSessionsRevenues…
Challenge Solution Result
€5,184m €5,184m
+70%ofrevenues
€5,184m €8,8128m
X €5,184m+0,7*X
€17,28m €5,184m+0,7*17,28m
Revenue Expenses
€17,28m €17,28m