Economics of Spotify
- Martina Joyce Rozario
- Jul 10, 2022
- 3 min read
Updated: Jul 12, 2022
Spotify, the world’s leading digital music streaming platform, has been heralded as the savior of the recording industry. It has always focused on making a relationship among the youths and gen z bringing up an excellent, grooving and diversified music and playlists with tabloids and podcasts keeping the present generation hyped through its platform.
Spotify has always prioritized their customers and this has been achieved through its algorithm. Spotify’s algorithm sets it apart from other music streaming services. It is always finding new ways to understand the kind of music one listens to — from the songs that are always on repeat to the favorite genre that runs on loop on one’s mind.
Not only is the algorithm monitoring the music history but also analyses the reason behind a person listening to a particular song or preferring a particular genre over the other.
But with always providing topmost priority and services to the listeners, one might wonder what economics lies behind its digital music, podcasts and videos.
Spotify economics lies within two main sources
A free tier supported by advertising
A premium tier with paid subscription
Spotify’s all-time famous freemium version charges no amount from its customers and allows its users to easily browse through catalogue of songs and play them. However this easy to access digital music comes with advertisements that is popular for halting a user’s entertainment. Spotify has gained a lot of popularity among the youth and is everywhere in the name of digital music platform and as a result has attracted a large lot of advertisers who choose spotify for their promotions in various forms like video advertisements, audio advertisements, etc. becoming a fundraising mode for the streaming platform. Spotify in the year 2021, generated an income of 1208 million through its freemium version in ad-supported revenue.
Spotify has been witnessed as the digital platform that uses the best of its technology to target its users with audio ads. As a result it supports a number of advertisement models like Sponsored session, Branded Moments, Sponsored Sessions, Audio, Video Takeovers, Display, Homepage Takeovers, Overlay, Advertiser Pages and Branded Playlists. These ads vary in type, size and user engagement.
The well hyped premium version of Spotify that comes along in the form of advertisements offers an uninterrupted access to music across all devices, including smartphones, tablets and televisions. While providing with a seamless user experience, the premium version offers services like downloading songs for their devices during offline mode with high quality listening. In the most recently reported fiscal year, Spotify generated about 8.5 billion euros in premium revenue. The subscription offers are available at varying rates- Rs.199 per month for an individual, Rs.149 per month for two, Rs.179 per month as family package.
One major factor about how a company functions is how it splits up its income. Taking an example of one user with premium service, the total amount spend per month is Rs.199 out of which Rs.119 goes to the owner of the recordings, Rs.19 goes to the owner of publishing copyright and the rest is kept by Spotify itself. This proportion of income sharing is exactly the same as taken up by other digital platforms like iTunes where 70% is shared by the owner and publishing copyrights and is a higher percentage than they share for goods sold at physical music retailers. That is in total about 60% but when you consider that that an actual CD or LP shipped, stored, retailed, etc. that ends up being a reasonable value.
My point being that, economics of Spotify conform to the economics that have been existed in the music industry once. It is just the perceptual shift in the transactional relationship that has occurred. It is like spending a certain amount of money every day for one month instead of paying the total amount as a whole at the end of the month. At the end the amount spent would roughly be the same.
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