The Spotify Business Model

Very interesting article, by BusinessModelsInc

Traditional Record Label Model

No industry is changing as rapid as the music industry. In the past, the record companies fully determined which artists were launched national or international. The production costs, the promotional costs and the distribution costs for an album were significant. The music industry lived for the blockbusters with huge sales from a handful of talents. The core business of a record company was to discover and to launch new talent. In the last ten years, this has all changed. The record companies could not keep up with the rapid developments in the market and lost considerable ground to newcomers.

Piracy

Digitization has made it easier to exchange music. In 2001, applications like BitTorrent, Napster and The Pirate Bay made their entrance in the market. These applications were pioneers in a new era. They presented a new business model in the music industry, the piracy model. Piracy was easy and “for free”, which led to a massive download movement. Users do not pay for copyrighted music and become “pirates” leaving both the artists and record companies empty-handed.

Spotify

Spotify makes music available in legal way by providing (free) access to songs and albums. The Spotify business model (access to music) challenges the business model of iTunes (owning music). Spotify provides music to anyone with an Internet access, via your PC or your mobile device, for free. The Spotify model is based on “music anytime, anyhow, anywhere”. The user determines whether he or she takes the free version (with advertising) or the premium version (without advertising). Spotify introduced the model of “providing access to music”, with or without advertising.

[ ... ]

The Future

There is no player in the music industry, which has succeeded in creating a mass market where users once again pay for music. No player can yet claim to be the ‘global standard’. It will be exciting to see which one of the players in the music industry will elevate themselves to become ‘the Facebook of the digital music industry’. Spotify has a good chance.

Read more