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Spotify Business Case
- 3. 3 Challenge Solution Result Challenge Solution Result Spotify Memberships Spotify Ticketing Spotify Sessions Convert Spotify’s users into paying members Either paying 1€ to extend trial period or paying 10€ to subscribe The premium service does not add enough value Spotify is not appealing enough for right holders Offer a ticket selling service with benefits for subscribers and artist Offer live streams of festivals/sessions only for subscribers Executive summary • 5,5m new premium subs • 32m new basic members • generating €365,2m • 2,8m new premium subs • generating €184,29m • 1,09m new premium subs • generating €65,448m
- 4. Although streaming does not hold the largest share among the music industry’s revenue yet, it catches up with growth rates of 50% p.a. 4 • Music downloads still biggest share • Streaming only makes up 27% of the current digital music revenues • BUT: Growth of 51.3% in only 1 year Challenge Solution Result Fortier (2014), http://www.stat.gouv.qc.ca/statistiques/culture/optique-culture_an.html IFPI (2014), http://www.ifpi.org/downloads/Digital-Music-Report-2014.pdf Share from digital music in global market • Digital music revenues growing heavily (by 48% since 2008) • Accounting for €5.31bn in 2013 Global revenue in digital music 67% 27% 6% downloading music files streaming other
- 5. Revenues in the music industry have decreased overall since 1997, however, digital music revenues did partially balance the losses 5 • Digital music revenues taking over physical sales revenues (by 48% since 2008) • Accounting for €5.31bn in 2013 • In general decreasing revenues from the music industry • However, digital revenues do not outweigh losses of physical sales yet Challenge Solution Result King (2013), http://qz.com/56998/the-music-industry-grew-last-year-for-the-first-time-since-1998/ Development of revenue in music industry [in €M]Composition of global music sales 1997 2001 2005 2011
- 6. 6 What does it take for Spotify to achieve break even? Net income of Spotify has continuously been negative in its history Challenge Solution Result -2000 -1600 -1200 -800 -400 0 400 800 1200 1600 2000 2008 2009 2010 2011 2012 2013 2014 2015 2018 million euros revenue operating costs net income • Current net loss: €179,1m • Spotify must pay 70% of revenues to right holders • Consequence: Spotify does not only need to make additional €179m but €597m Statista (2015), http://www.statista.com/statistics/244990/spotifys-revenue-and-net-income/
- 7. 7 162,3ml € losses in 2014 à 541ml € additional revenues - 378ml € additional expenses (70%) = +162ml € net income -2000 -1600 -1200 -800 -400 0 400 800 1200 1600 2000 2008 2009 2010 2011 2012 2013 2014 2015 2018 million euros revenue operating costs net income It takes Spotify additional €597m of revenues in order to reach break-even Challenge Solution Result Statista (2015), http://www.statista.com/statistics/244990/spotifys-revenue-and-net-income/ • Current net loss: €179,1m • Spotify must pay 70% of revenues to right holders • Consequence: Spotify does not only need to make additional €179m but €597m Net income of Spotify has continuously been negative in its history
- 8. The major weakness of Spotify is that it has in all its history always faced negative net income 8 • Payments to right holders make up approx. 62% of Spotify’s expenses • 70% of total revenues go to right holders • 74% of free users only contribute to 10% of Spotify’s revenue in 2014 • 26% Premium users contribute to 90% of Spotify’s revenues in 2014 Challenge Solution Result The Guardian (2015), http://www.theguardian.com/technology/2015/may/11/spotify-financial-results-streaming-music-profitable 756 486 Payments to right holders Fixed costs 0% 20% 40% 60% 80% 100% Share of free / Premium subscribers Share of revenue they contribute Premium users Free Users Number of customer types and their according revenue generated in 2015 Cost structure of Spotify in 2015 [in €M]
- 9. 9 Challenge Solution Result Challenge Solution Result Spotify Memberships Spotify Ticketing Spotify Sessions Convert Spotify’s users into paying members Either paying 1€ to extend trial period or paying 10€ to subscribe The premium service does not add enough value Spotify is not appealing enough for right holders Offer a ticket selling service with benefits for subscribers and artist Offer live streams of festivals/sessions only for subscribers Executive summary • 5,5m new premium subs • 32m new basic members • generating €365,2m • 2,8m new premium subs • generating €184,29m • 1,09m new premium subs • generating €65,448m
- 10. Spotify must improve its pricing structure as well as increase its attractiveness in order to reach the main objective; 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 • A different pricing structure will allow Spotify to increase the subscriptions • Increasing subscription price is too risky • Decreasing subscription price does not meet our goal • Partnering (joint-ventures, M&A or IPO) does not solve profitability problem • Spotify must work on its attractiveness for right holders and subscribers • Organizing own festivals and adding music videos would be too expensive (huge server costs) VALUATION 10
- 11. • A different pricing structure will allow Spotify to increase the subscriptions • Increasing subscription price is too risky • Decreasing subscription price does not meet our goal • Partnering (joint-ventures, M&A or IPO) does not solve profitability problem • Spotify must work on its attractiveness for right holders and subscribers • Organizing own festivals and adding music videos would be too expensive (huge server costs) 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 Spotify must improve its pricing structure as well as increase its attractiveness in order to reach the main objective; break-even
- 13. Spotify still pays small pay-outs to right holders compared with other streaming platforms 13 Challenge Solution Result Status quo: • Spotify spending 70% of its gross income • Right holders December 2013: • Spotify pays between €0,0057 - €0,0079 per stream • iTunes pays €0,65 per track How will Spotify compensate right holders better while aiming for profitability? 0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 Per-stream payout(€) Average per-stream payouts
- 14. The minority of premium users contributes practically all the revenues of Spotify 14 0% 20% 40% 60% 80% 100% Share of free / Premium subscribers Share of revenue they contribute Number of customer types and their according revenue generated in 2015 Premium users Free Users Challenge Solution Result 26% of premium users contributed 90% of Spotify’s revenues in 2015 In order to be profitable there are two solutions to generate revenue: • Generate more revenue by ads • Increase annual subscriptions Premium 14
- 15. We created an online survey in order to find out the willingness to pay of Spotify customers, if there would not be a free membership anymore 15 Questions asked: 1) Would you pay CHF12.95 / €9.99 for Spotify if you could not use it for free anymore? 2) If not, what other channel would you use to listen to music? Results: (217 participants) Challenge Solution Result 71% 29% No Yes Youtube Apple Music iTunes Soundcloud Torrents Other
- 16. New pricing strategy will help Spotify to get extra revenues 16 Premium membership: €10 every month Basic membership: €1 every 3 month Free account Challenge Solution Result • Basic membership with low fee replacing free account • Basic fees shall outweigh losses from less ad- revenues • Incentive to subscribe for premium is higher
- 17. New pricing strategy will require at least 30 million basic memberships in order to outweigh losses from less ad-revenue 17 Challenge Solution Result 75 million users 20 million premium subs 55 million free users Assumption: Spotify’s revenue in 2015: €1.428bn • Revenue from premium subs: €1.296bn • Revenue from free users: €132m Old pricing strategy New pricing strategy ? million users ? million premium subs ? million basic members Basic fees shall outweigh losses from less ad-revenues: • 30m basic membership users required to achieve break even (outweigh losses)
- 18. Ten percent of the current free users subscribing for Spotify will increase its revenues by 358,4ml € within the next 3 year 18 Challenge Solution Result 75 million users 20 million premium subs 55 million free users Assumption: Spotify’s revenue in 2015: €1.428bn • Revenue from premium subs: €1.296bn • Revenue from free users: €132m Old pricing strategy New pricing strategy 55,5 million users 25,5 million premium subs 32 million basic members Assumption: Spotify’s revenue in 2018: €1.7932bn • Revenue from subscriptions: €1.6524bn • Revenue from basic members: €140,8m + €365,2m
- 19. 1919 The pricing strategy increases Spotify’s revenue by €365,2m Challenge Solution Result 5,5m new premium subs & 32 million basic members through Spotify Memberships €356,4m revenues + €140,8m revenues €132m revenues (no ads for free users) €365,2m net revenue
- 21. SPOTIFY OFFERS THE TICKET PLATFORM AT A LOW PROFIT MARGIN IT IS CONVENIENT FOR ALL THE ARTISTS TO SELL THROUGH SPOTIFY OTHER COMPETITORS CANNOT AFFORD SUCH A LOW COMMISSION THIS WILL GIVE SPOTIFY LEVERAGE TO NEGOTIATE THAT THE TICKETS ARE AVAILABLE ON SPOTIFY EARLIER INCENTIVE FOR USERS TO BECOME SUBSCRIBERS Challenge Solution Result 20 Spotify Ticketing will gain leverage by requiring a low profit margin for the service and then use it negotiate tickets available earlier on Spotify
- 22. SPOTIFY TICKET SELLING PLATFORM RIGHT HOLDERS PREMIUM USERS Save money Reach a lot of fans The more tickets sold through Spotify the better Get tickets in advance Feeds about the tours Integrated calendar Direct payment ü ü ü ü ü ü Spotify becomes the first ticket platform The users will have an incentive to become premium More appealing for right holders/artists because of a “self-marketing” function ü ü ü ü Challenge Solution Result Artists can sell their tickets with less costs and premium users can purchase tickets in advance while Spotify gains more subscriptions 22
- 23. * 11% for the first 50’000, and then 6% General idea • Possibility for the artists to sell tickets via Spotify • Spotify will offer the service for a 7% profit margin • Negotiation (tickets available two days in advance) Challenge Solution Result 23https://seatgeek.com/tba/music/concert-ticket-fees/ Spotify is able to position itself as a cheap and smart solution for artists to sell their concert tickets – giving an incentive for users to subscribe 0 5 10 15 Ebay* Spotify Ticket Network Ticket Liquidator Vividseats StubHub Ticketsnow Razogator Profit margin of various online ticketing providers Detailed concept • Everyone is able to buy tickets through the platform • Only subscribers will have access to the pre-sale Consequence • Incentive for users to become subscribers
- 24. Spotify will integrate the ticketing into its platform – user-friendly ticketing 24 What Spotify offers… • Promotion of World Tours • Ticket selling • Spotify exclusive feeds Challenge Solution Result How users will proceed… • Acquired via platform • Buyers receive electronic ticket
- 25. Spotify can implement the ticketing without incurring high costs 25 Challenge Solution Result Software development* § Focus the development task force on the software Sales § Adding ticket possibility in pre-existing contracts* § Creation of ticketing departments Marketing* § Marketing through social media and press releases Expenses and resources allocation for Spotify Ticketing Total cost per year = €1,225,760 * These tasks are going to be implemented by already existing employees – therefore there is no additional costs
- 26. The financial goal of the ticketing platform is to be break-even 26 Challenge Solution Result Revenue possibility from ticketing • Average seats per concerts: 13’000 • Average ticket price for main artists: 78 € • By selling 10% of the tickets through Spotify the revenue is 7’098€ for a single concerts • In order to cover its costs Spotify has to be able to sell 10% of the tickets for 575 concerts around the world 10% of the tickets of 575 concerts successfully sold to reach the break even point Key Message
- 27. The ticketing will make Spotify attractive for all stakeholders 27 Challenge Solution Result Benefit for artists Benefit for premium subscribers • Promotion of the tour through Spotify • Advantage rate of 7% • Possibility to save up to 3’194’919 € per tour • Exclusive insights feeds from the artists • Possibility of purchasing the tickets two days in advance • Direct payment possibility • E-tickets directly on your e-mail Premium
- 28. 2828 Through ticketing, Spotify will generate €184,29m net revenue Challenge Solution Result 2,8m new subscribers through Spotify Ticketing €181,44m revenues €1,225m implementation costs €184,29m net revenue €4,083m (margin 575 concerts)
- 31. Spotify needs more unique premium-only features 31 • Pricing structured to enable profitability, but important to grow premium base • So far only ad-free, offline mode, enhanced sound quality and connectivity features only for premium • More features needed that aren‘t totally focused on sound Challenge Solution Result
- 33. 33 Challenge Solution Result • While recorded music revenues are going down, live music revenues are growing • Rising number of festivals and concerts with better technology and new formats Live music revenue is hugely growing, so are concerts and festivals Trojan360 (2014), http://www.trojan360.com/the-power-of-live-music-2/ Growing live music revenues
- 34. 34 • Tomorrowland biggest electronic music festival in the world • Grew 4500% in attendance since its inception in 2005 • Very young audience, same as Spotify • Online livestreams so far for free Electronic music festivals such as Tomorrowland are a success story 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 Attendance Growth Tomorrowland Dancing Astronaut (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/
- 35. 3535 Spotify Sessions is the way to integrate festival experiences into Spotify Challenge Solution Result • Own subpage on the mobile and desktop app • Promoting upcoming festivals and nearby concerts (direct link to buy festival tickets and to Spotify Tickets) • Live events on soundless auto-play • Audio (listen) feature
- 36. 3636 All sessions will be Spotify-exclusive Challenge Solution Result Live Sessions with artists • In general the livestreams on Spotify are live and should be exclusive • The goal is to make users feel like they‘re missing out on something if they don‘t register
- 37. Spotify can implement the ticketing without incurring high costs 37 Challenge Solution Result Software development* • Forming a developer squad to develop livestreaming software Sales • Hiring new salespeople • Negotiate exclusive livestream deals Marketing* • Marketing through social media and press releases Total cost per year = €5.184m Expenses and resources allocation for Spotify Sessions * These tasks are going to be implemented by already existing employees – therefore there are no additional costs
- 38. 3838 We will acquire big festivals first and then implement our own solution Challenge Solution Result Hire salespeople for partnerships Acquire exclusive partnerships with festivals/artists (with already existing livestreams) Establish Spotify as known livestream partner Finish development of own livestream software Offering software and expanding to festivals/artists without existing livestreams 1 2 3 4 5
- 39. 3939 Spotify Sessions will generate €65,448m net revenue Challenge Solution Result 1,09m new subscribers through Spotify Sessions €70,632m revenues €5,184m costs for Spotify Sessions €65,448m net revenue
- 41. 41 Challenge Solution Result Challenge Solution Result Spotify Memberships Spotify Ticketing Spotify Sessions Convert Spotify’s users into paying members Either paying 1€ to extend trial period or paying 10€ to subscribe The premium service does not add enough value Spotify is not appealing enough for right holders Offer a ticket selling service with benefits for subscribers and artist Offer live streams of festivals/sessions only for subscribers Executive summary • 5,5m new premium subs • 32m new basic members • generating €365,2m • 2,8m new premium subs • generating €184,29m • 1,09m new premium subs • generating €65,448m
- 42. We identified the risks of mainly having too little impact that have to be taken into account Risk Probability Impact Mitigation • Too few free users subscribing • Users going to the competitors • Further improvement of Premium version • Still offering functions and services that competitors do not • Customers do not buy tickets via Spotify • Artist do not want to sell their tickets via Spotify • The platform is user-friendly and they can buy tickets in advance • Profit margin is lower and Spotify also offers promotion through the platform (feeds) • Users prefer to watch concerts live • Artists won’t risk to loose income from concerts • Premium offer – even if users didn’t want to use it – will still buy it • Installed measures will give additional incentives and special deals to artists Low Medium High Spotify Memberships Spotify Ticketing Spotify Sessions Challenge Solution Result 42
- 43. Our solution will achieve a break-even until the end of 2018 43 Corporate P&L (million €) 2015 2016 2017 2018 Revenue Base revenue Extra revenue from Spotify Memberships Extra revenue from Spotify Ticketing Extra revenue through margin Extra revenue from Spotify Sessions 1428 - - - - - 1682,783 1428 146,08 90,72 4,083 13,09 1888,748 1682,783 127,82 54,432 4,083 19,63 2053,139 1888,748 91,3 36,288 4,083 32,72 (Cost) Fixed Costs Royalties Extra Labour Partnerships (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) Operating income (179,1) (109,0786) (47,2856) 2,03194 (Corporate Tax of 22% ) - - - 0,4470268 Net income (179,1) (109,0786) (47,2856) 1,5849132 Net income margin (12,5%) 0,077% Challenge Solution Result Trading Economics, http://www.tradingeconomics.com/sweden/corporate-tax-rate
- 44. Artist benefit from Spotify’s overall solutions as revenue is generally increasing 44 Challenge Solution Result Artist benefit from extra €597m revenues caused by the pricing • 70% * €597m = €418,6m additionally paid for royalties • €1,4146bn instead of €996m for royalties 756 523 301 131 996 20182015 Money spend on royalties (in m €) +40% 2011 2012 20142013 1 415
- 45. 45 Action 2016 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Change Software Communication Contracts creation Software development Sales Department Instruct employees Partnerships Establish the brand Software Development Contracts Creation Expansion Spotify Memberships Spotify Tickets Spotify Sessions Preparation/Planning Implementation Our implementation starts in Q1 2016 and will be mainly finished after Q2 2017 Challenge Solution Result
- 47. BACKUP
- 48. ANALYSIS
- 49. CD sales in North America have declined significantly during the last 15 years 49 • CD sales dropped by 73% in North America since 2000 • Physical music is loosing relevance • Music industry facing problems with monetizing CD sales in North America
- 50. A minority of Premium users contributes practically all of Spotify’s revenues 50 Spotify comprises most Premium users in comparison to its competitors 26% of Premium users contributed 90% of Spotify’s revenues in 2014 0 100 200 300 # countries # songs [in mio] # Premium users [in mio] # Total users [in mio] Deezer Pandora Spotify 0% 20% 40% 60% 80% 100% Share of free / Premium subscribers Share of revenue they contribute Number of customer types and their according revenue generated in 2014 Premium users Free Users
- 52. Analysis of music streaming market shows that the streaming market itself is already highly consolidated but major threat comes from illegal platforms 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
- 53. Analysis of online ticket sales market shows that it holds numerous advantages compared to the music streaming market 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
- 54. The USP of Spotify is its large user base as well as new opportunities in the sale of concert tickets online 54 ▪ User base comprises 75M people ▪ Contracts with multiple right holders on global scale ▪ Technology enabling instant music experience as if saved on hard-drive ▪ Potent and dedicated investors ▪ Brand partnerships Strenghts Weaknesses Threats Opportunities ▪ Spotify has never generated a net profit so far ▪ Free customers contribute less than 10% p.a. of revenues ▪ Only 25% of Premium users generate 90% of revenues ▪ Artists are withdrawing their songs from streaming platforms due to low payment ▪ Development of Spotify hindered due to compulsory contracts with right holders ▪ Music streaming outperforms download of songs and albums ▪ In parallel, the concert market & thus also the online sale of tickets is booming
- 55. Copyright issues provide an effective entry barrier for new competitors on the music streaming market 55 ▪ Venture-capitalists are numerous and willed to invest in start-ups like Spotify all over the world Economic implications Social implications Technological implications Legal implications ▪ Spotify’s users are rather young while demography tends to more elderly people ▪ Programmers can nowadays be found all over the world ▪ Internet technologies develop further rapidly & Spotify must be capable of adapting ▪ Spotify must always consider the reaction of right holders in all what it does due to copyright law ▪ In parallel, it constitutes entry barriers for new competitors
- 56. Back up - Comparison of the Main Music Streaming Services 56 Percentage of paying subscribers on toal 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 Cost Premium service Subscribers Pandora Spotify Deezer
- 57. BACKUP 57
- 58. PRICING
- 59. Data on customers/revenue origin (I/II) 59 • 2013: 747 million € revenues in 2013 (24 ml active users) • 91% from subscriptions • 9% from advertisement • 2014: 1.08 billion € revenues in 2014 (60 million users, 15mil subscriber) • 1.08bn € x 0,9 = 972ml from subscriptions à1.08bn € x 0,9 / 15ml / 10€ = 6,48 month of subscriptions • 1.08bn € x 0,1 = 108ml from ads à108ml € / 45ml = 2,4€ • 2015: 75 million users (20 million subscribers) • 20ml (subscribers) x 10€ x 6,48 = 1.29bn € • 55ml (free users) x 2,4€ = 132ml € Revenues in 2015: 1.296bn + 132ml = 1.428bn € Challenge Solution Result
- 60. Data on customers/revenue origin (II/II) 60 • Basic fees shall outweigh losses from less ad-revenues • X*2,4€ + x*1€*2 = 132ml € (2*3 month usage) • X = 30ml (30ml*2,4€ + 30ml*1€*2 = 132ml €) • 2015: 55,5 million users (25,5 million subscribers) (55ml*0,1 = +5,5ml) • 25,5ml (subscribers) x 10€ x 6,48 = 1.6524bn € • 32ml (basic members) = 132ml € Revenues in 2015: 1.6524bn € + 132ml € = 1.7864bn € Challenge Solution Result
- 61. What does it take Spotify to achieve a break even? 61 Challenge Solution Result • 2014: 162,3 ml losses • We need 541’000’000 additional revenues in 2015 so that 70% of this number goes to artists and 30 % of this revenue (162,3ml) will stay with Spotify
- 63. TICKETING
- 64. Back up – Ticketing implementation plan 64 Challenge Solution Result Offer the service to major artists first • Own world tours – at least 60 Stops • Music Award Nomination • Strongly followed on social media • Strongly followed on Spotify • Big profit from album • Since spotify is able to segment its customers, when a world tour is up, the service will be able to advertise the event in the country/area • Major artist usually fill up big concerts hall, therefore we can profit more - having a 7% profit margin
- 65. Back Up – Implementation of the two new offices 65 Challenge Solution Result Creation of one offices in the USA and Europe: - Two partner implementatoion project manager 105’208 € / year - 18 external relations and sales 56’400 € / year - Support is going to go through Spotify - Already existing product development department is going to work on this Total cost per year = 1’225’760 €
- 66. Benefits for the artist 66 Challenge Solution Result Revenue benefit for the artist • Spotify has a profit margin of 7% instead of the average 11,5 % in the ticketing industry • 4% additional profit margin for artists • Average seats per concerts: 13’000 • Average ticket price for main artists: 83 $ • 173 concerts minimum per year 13’000*0,1*83$*0,04= 4316$ 4316$/0,0052 = 828’406 additional streams 4316$*173 = 764’668$ = additional 1’066’669$ of revenues if only made by spotify
- 67. Back Up - Spotify has to make its service appealing for right holders 67 Streaming service payout Urgent needs Streaming platforms are not profitable for right holders • Between 0.006 and 0.0084 each time a song is played • Between 6 and 8 when a title is heard 1000 times • Royalities paid by Spotify are very low • To equal 1 iTunes purchase, 135 plays in Spotify are needed • To equal the selling of an album, a song needs to be palyed 47’680 times on Spotify • Since 2013 piracy has started to decline • Make the service more appealing for right holders • Offer better compensation • Offer new services from which the artist can gain Challenge Solution Result
- 68. Back up – What do artists gain 68 Challenge Solution Result Comparison Between Spotify and other streaming services Spotify profit margin: 7% Total revenue per concert*: 1’014’260 € Artist revenue after ticket costs: 943’261 € Ticketing expenses: 70’998 € Average competitors profit margin: 11,5 % Total revenue per concert*: 1’014’260 € Artist revenue after ticketing costs: 897’620 € Ticketing expenses: 116’639 € * A concert with 13’000 tickets sold at a price of 83 USD Difference in expenses = 45’695 € Assuming that a world tour has 70 stops an artist could save up to 3’194’919 €
- 69. 6969 Back Up – Ticket Implementation Challenge Solution Result Contracts Software Development New Department Instruction of Existing Employees Start Offering the Service • The possibility of the ticketing service is added to the existing contracts • The terms will include 7% profit margin and the possibility for the artist to target potential purchasers • The task of integrating this feature in the already existing softars is given to programmers already working for Spotify • 20 people are hired to support the relations with the artists in this sense • The Department will be in New York • Already existing employees – especially from the client support deparment are instructed on how to solve certain issues
- 70. Spotify has to make its service appealing for right holders 70 Spotify payouts are too low Streaming platforms are less profitable that downloading platforms for right holders Challenge Solution Result Make the service more appealing for right holders
- 71. Spotify can implement the ticketing without incurring high costs 71 Challenge Solution Result • Contracts related expenses • Software related expenses • Marketing related expenses Expenses of the ticketing implementation Type of cost Level Adding ticket possibility in pre-existing contracts Low Focus the development task force on the software Low Marketing through social media and press releases Low Creation of ticketing departments in USA and Europe Medium -High Main expenses: Creation of one office of 20 people in the US Total cost per year = 1’304’000
- 72. 7272 Impact Challenge Solution Result 2,8m new subscribers through Spotify Ticketing €181,44m revenues €1,225m implementation costs €184,29m net revenue €4,083m (margin 575 concerts)
- 73. 7373 Understanding the Ticketing Revenues… Challenge Solution Result €1,225m €1,225m + 70% of revenues €1,225m €2,0825m X €1,225m + 0,7 * X €4,083m €1,225m + 0,7 * 4,084m Revenue Expenses €4,083m €4,083m
- 74. SESSIONS
- 75. Backup - Why no videos 75 Challenge Solution Result • Huge storing costs (livestreams are not stored after – another reason why you have to be premium) • We don‘t want videos that other platforms have • VEVO won‘t allow exclusive videos outside of their platform
- 76. 7676 Backup - Impact Challenge Solution Result - Only Axwell Λ Ingrosso Livestream from Tomorrowland 2015: 2‘000‘000 livestream viewers - With 2 other big festivals per year + a range of exclusive artist sessions: - 6’000’000 * 0.1 + 3’300’000 * 0.09 = about 1,09m new subscribers Estimated 1,09m new subscribers after the first year, growing together with number of new exclusive festivals and growth of festivals
- 77. Backup - Spotify Sessions Costs 77 Challenge Solution Result Hiring new salespeople: • 1 US, 1 Europe around 92’000$ each / year Livestream partnerships: • Two big, range of small ones around 5 mio. $ / year Total cost per year = 5’184’000 $ -> However, these costs are shrinking after the livestream software is finished, since it will be cheaper to make exclusive partnerships because we offer way more.
- 78. 7878 Backup - Implementation Challenge Solution Result Livestream software and brand awareness Acquiring fast and big partnerships Broad expansion • First integrating festivals and sessions with already existing livestreams to keep costs low and make livestream partnerships • Develop own livestream software through developer squad and rise as music livestream brand through existing partnerships • Then expanding onto festivals and big concerts without any livestreams
- 79. Backup – Benefits for festivals 79 Challenge Solution Result Better quality (example: Tomorrowland) Added audience for festivals (big number of Spotify premium subscribers) Audience is exactly the one that wants to be reached by festivals Already paying subscribers: chances higher that they could also buy a ticket for the next festival Association to brand of Spotify
- 80. 8080 Backup – Sessions Pricing Challenge Solution Result • Sales and marketing expenses • Software development Expenses of Spotify Sessions Type of cost Level Forming a developer squad for Spotify Sessions Low Marketing through social media and press releases Low Hiring new salespeople to negotiate exclusive livestream deals with biggest festivals using existing salespeople Medium -High Main expenses: Hiring new labour and exclusive livestream deals Total cost per year = 5’184’000
- 81. 8181 Impact Challenge Solution Result 1,09m new subscribers through Spotify Sessions €70,632m revenues €5,184m costs for Spotify Sessions €65,448m net revenue
- 82. 8282 Understanding the Sessions Revenues… Challenge Solution Result €5,184m €5,184m + 70% of revenues €5,184m €8,8128m X €5,184m + 0,7 * X €17,28m €5,184m + 0,7 * 17,28m Revenue Expenses €17,28m €17,28m
- 83. IMPACT
- 84. Bachup Calculation on Subscribers required 84 Challenge Solution Result 541ml € in order to achieve break even 358,4ml € from price discrimination + 129ml € from Spotify ticketing + 53,136ml € from Spotify streaming = 541ml €