Marketing· Product or Service · If product Product, Price, P.docx

Marketing
· Product or Service?
· If product: Product, Price, Place, Promotion (Consider
whether consumer/industrial goods, durability of product,…)
· At what stage of the product life cycle is this market? Are we
dealing with a new product category or a mature and well-
established one?
· If service: what is the process of delivery? What are the
qualifications of the service staff (in direct contact with
customers)?
· How large is the market for the product/service? Is it growing
or shrinking?
· What are the major forces influencing demand for this
product/service?
· Is demand of product/service consistent over time? Does the
demand fluctuate sharply or in response to temporal or cyclical
factors?
· Can the organization satisfy the demand in the market?
· Who are the competitors serving this market and what are their
market shares? How and why have these shares been changing
over time?
· Are customers loyal to your product/brand?
· How is the market for this product/service segmented?
· What are the demographic characteristics of customers and
potential customers in this market? Consider customer’s
willingness to pay.
· Are there any major customer needs or wants which are not
currently being satisfied?
· Is it difficult for customers to switch from your product to
competitor’s products?
· How closely does the product/service match the need of the
market?
· How well do the activities of the organization drive demand?
· How well do the activities of the organization ensure that the

product/service is available to the customer at the moment and
location of need?
· How would you rate the after-sales service and/or warranty
services of the organization?
Collaborators and External Relationships:
· What types of relationships exist? Duration? For what
services?
· Whose strengths best complement those of the organization?
· How will each partner benefit from a strategic alliance?
· What are the risks & rewards of collaboration?
Grid System Analysis
Design Grids are Not
Mathematical Grids
They have gutters, and
type fits in perfectly
against all the edges

They act as a tool to
divide images and words
in a satisfying way
This confuses a lot of
people a lot of the time.
This zine was made to
help you make design
grids and to give you the
resources to delve further
into the grid world.
written by
Andrew Maher
This process is necessary whenever creating a grid, as
it gives us the divisions on the page which we have to
follow if we want the grid to look really tight. You’re
going to have to trust me because you won’t see this
until a little further on down the track.

So we’re going to define how wide our text columns
are. Again think first about what it’s going to be used
for, if this were a book or a magazine, you want to give
the reader enough room on the outside of the page to
stick his or her thumbs on. But don’t forget the inside
of the page either, as they arch up more and more as
you get closer to the centre which means you’ll want to
give the text enough space on the inside as well, so the
writing doesn’t get too distorted by the curve and the
reader won’t have to flatten the spine every time they
want to read the inside of the page.
Everything has it’s own special little nuances that
you’ll want to think of all throughout this process. In
my experience Industrial Designers do this better than
anyone else.
The grid that this text sits ontop of was designed for the
web. It’s got decent leading so that the pages don’t
look too crowded and a generous gutter so lines of text

don’t run into one another. I like it when there is little
difference between the edge of the page and the edge
of the grid, this will only work when designing for screen.
Draw your type area on a scaled piece of paper first. A
good way to get a template to draw on is if you a piece
of A4 paper and fold it in half 4 times. You should then
have 16 rectangles which are a 1/4 size of an A4 page.
There are a few things that will help you define this
area. In book design Tschichold used “the Van der
Graaf canon”. For websites “http://webtypography.
net/” offers a few tips for good typographical practice
online. All of these things will help you in obtaining a
nice type area for your page.
An a4 page is usually way too wide for one line of
text. Müller-Brockmann; “There is a rule which states
that a column is easy to read if it is wide enough to
accommodate an average of 10 words per line”1. If
you pick a nice type size (usually around 8-10pt for a

serif font, 7-9pt for a sans-serif - all depending on the
font.) You’ll end up fitting about 27-30- so we divide
the page in half.
Gutters now need to be created. This sets up the
division between the two columns. These should be
wider then 1mm, as really tight gutters just make the
text look like it runs from one column right into the next.
Experiment with this, create a few grids and see how
close they are together, keep going and you’ll develop
a nice feel for when a gutter is too wide or narrow.
I don’t want to have too many divisions so I’m going
to leave my type area at two columns. If you’d like
to create 4 you can simply half each of the columns
again and create gutters that are the same width as the
gutters in the centre.
Fonts can be really subjective, everyone likes different
ones. When fonts are designed though they are most
of the time created for specific functions, this may

help you in selecting the right ones. Type Designers
(not typographers) create fonts a lot of the time for
specific needs. Times, created for the London Times
was created with the intent of being printed onto cheap
newsprint paper, it was created with certain properties
in mind, as on newsprint the ink spreads easily. Times
was designed to embrace these special conditions.
Arial, a font loathed by a lot of type designers was
created to be displayed on computer screens, which
means it was created on top of square pixels and lacks
a lot of intricate details. Futura was created with a set
of “perfect proportions” to make it the most readable
font (this it is not, but it is still a beautiful typeface none
the less; you’re lookng at it right now).
What’s the difference to me you may ask? Well that’s
pretty fair, there are a lot of books written on how
to design typefaces and how to select them, “Stop
Stealing Sheep and Find out How Type Works” by Erik

Spiekermann and E.M Ginger offers a great insight in
CHOOSING A TYPE AREA CHOOSING A FONT
Type area (in red) is defined Gutters are createdType area is
halfed Type is applied
“Type> Fill With
Placeholder text”
Am sendelit, que
exceaqu asimeturi
repedit aecearcia et
auta asit qui simus
conse et pedigene
con re plitassequas
debitium acepudandi
ute nes ut dolenim
oluptam, tempor
mi, solore occusci
endelli busapissento
quatias pedipici cus,
id qui quo conec-
totam, qui cum quo
temped ut es ea
enihilles eum alibus
aut abore, voloris
ma vent ut fugia per-
nam, volupti odi di ut
el maiorem vendam
haritatur? Gitae volorio. Ut
odisquo magnam
is aut que lacesti
iscitatectur abo. Ic
tecero issuntiatur,

none impor recupta
inverum solum rei-
um, omnim et abor a
voluptaquae. Nam,
tet escienis dolupta
tumquam eat omnis
soluptatur reribus
dolorer atiam,
consequid excepel
ipsantis nonet fugiati
aerovid quae eturibe
arciis posandae.
Volupta sinvendam
volorro dolore cuptiis
doloreicium volupitat
veni as incipsum net
et pora dolor resti
dignimus.
Analyze the gird system of one page from one of your
favorite magazine.
Extra Credit ( 5 pt )

One paragraph about how this makes you look at content
layout on print designs differently.
(How many columns, what’s their margins, etc...)
Bonus Point ( 1 pt )
Figure out the reason why the editor place content
on the red area.
Hint
Make your own spread.
(Design and layout the a spread
on a 11” x 17” paper, with the unity of
your content)
2 pts
17 in
11 in
1 22
Sources

“Grid Systems in Graphic Design; a visual communication
manual for graphic designers, typographers and three
dimensional designers”
Josef Müller-Brockmann
ISBN: 978-3-7212
Lai, Ivy. “Grid System Research”
https://ivylailt.wordpress.com/2012/12/13/grid-system-research/
GRA 111
Design History
Fall 2015
Extra Credit #5 - Grid Analysis
Congratulation! You’ve made it! This is the last credit
opportunity available for
this semester. Here’s a little bit more clarification in addition to
what I have
covered in the presentation. You can earn up to 5 points for this
assignment,
and it is divided in to 3 parts:
1) Analyze the gird of a magazine spread that up to your choice,
and write up a
one paragraph (about 100 words) about how knowing the gird
system makes
you look at print design differently in the future. (2 pts)
2) Design a spread ( 11” x 17” ) that using a gird system, with
an initial to keep
the unity of your entire spread. (2 pts)

3) Answer the bonus question, in one or two sentence,
demonstrating your best
guess on why all the content in that specific spread are located
in the red area.
(1 pt)
GRA 111
Design History
Fall 2015
1) Spread Analysis and Reflection Paragraph (2pts)
Analyze the gird of a magazine spread that up to your choice,
and write up a
one paragraph (about 100 words) about how knowing the gird
system makes
you look at print design differently in the future. Point outs on
your spread
analysis will help demonstrate your understanding on the
design.
ep:
this is a 3 columns gird layout
The ration for
the pictures is
2:4. (One take
up two column
space one take
up 4 column
space)

The margin
of this spread
is 0.75 in
(possibly)
Similar page number style helps keep the unity of the spread
GRA 111
Design History
Fall 2015
2) Spread Design (2pts)
Now you have trained your eye for looking at the grid system,
time to indulge
your creativity. Design a spread ( 11” x 17” ) that using a gird
system, with an
initiation to create unity of content. For text, you can put in
some place holders.
Feel free to using content online, I won’t dot you for not citing
content and
pictures.
Consider the following while you are designing:
1) Using consistent fonts.
2) Utilizing different sizes of your font, or different typeface of
your font to
elaborate the information hierarchy in your spread.
17 in
11 in

1 22
GRA 111
Design History
Fall 2015
3) Answer the bonus question, in one or two sentence,
demonstrating your
best guess on why all the content in that specific spread are
located in the red
area.
(Related Article:
http://www.creativebloq.com/design/designers-guide-golden-
ratio-12121546)
3) Bonus Point (1 pt)
GRA 111
Design History
Fall 2015
Due in-class on Nov. 30.
Good luck and Happy Holiday!

Volume 13
Issue 3
September 2015
Legal and Profitable? Spotify: The Challenges of an Online
Music
Service
Case1, 2 prepared by Joëlle BISSONNETTE3 and Professor Eric
BRUNELLE4
Foreword
Founded in Sweden in 2006, against the backdrop of a music
industry plagued by illegal music
downloads and plummeting record sales, Spotify is an on-
demand music streaming service. It
offers online music consumers legal access to a repertoire of
over 30 million pieces of music, which
varies by country. Its mission is to let people listen to the music
they want, when they want and
where they want. To accomplish this, the company offers a legal
alternative that is superior to
piracy, via a simple, clear and rapid platform, making listening
to and sharing music easier than
ever. But the company still faces major challenges. It has to
respect intellectual property law, which
requires adequately compensating the rights holders to the

music it disseminates, while trying to
become profitable and differentiate itself from the competition.
How will Spotify position itself to
meet the needs of online music consumers better than other
online music services, while respecting
the law and turning a profit?
1. Background: A Music Industry Between Crisis and
Opportunity
1.1 Music and technology: a longstanding relationship
Since its beginnings, the music industry has undergone many
technological transformations that
forced it to rethink how it does business. The introduction of
cassettes in the 1960s made it possible
to create copies for private use and led to a crisis with fine-
groove records. When compact discs
(CDs) hit the market, dethroning the cassette, almost 20 years
of growth in sales of recorded music
followed; it was a golden age for the music industry, reaching a
peak toward the end of the 1990s.
1 Translation from the French by Rhonda Mullins of case #9 40
2015 015, “Légal et rentable? Spotify : les défis d’un service de
musique en ligne.”
2 This case was prepared on the basis of public documents, i.e.,
articles, records and interviews in the media and sectoral
studies of
the digital music market. It is also a direct observation of
Spotify’s Internet activities up until September 2015.
3 Joëlle Bissonnette is a doctoral student and research

professional at HEC Montréal.
4 Eric Brunelle is an associate professor in the Department of
Management, and Director and Editor-in-Chief of Gestion, at
HEC Montréal.
© HEC Montréal 2015
All rights reserved for all countries. Any translation or
alteration in any form whatsoever is prohibited.
The International Journal of Case Studies in Management is
published on-line (http://www.hec.ca/en/case_centre/ijcsm/),
ISSN 1911-2599.
This case is intended to be used as the framework for an
educational discussion and does not imply any judgement on the
administrative situation presented. Deposited under number 9 40
2015 015T with the HEC Montréal Case Centre, 3000, chemin
de
la Côte-Sainte-Catherine, Montréal (Québec) Canada H3T 2A7.
HEC110
For the exclusive use of K. Almalek, 2015.
This document is authorized for use only by Khaled Almalek in
MGMT 4399 Fall 2015 taught by George, University of St
Thomas - Houston from September 2015 to March 2016.
http://www.hec.ca/en/case_centre/ijcsm/
Music Service
During the same era, the emergence of high-speed Internet

connections and the mp3 file format –
which has become the official file format for digital music – led
to transformations that still have
the industry trying to find its way, upsetting the foundations on
which its performance is based.
The mp3 file format can compress files to almost 12 times the
size of the original, with no real
audible loss of quality. With households adopting Internet
technology, particularly high-speed
Internet connections, these files could circulate efficiently.
Digitized, compressed and stored by
individuals, music started to be exchanged for free and with no
restrictions on the Internet, without
the authorization of the rights holders in these musical works
and without providing them the
compensation that is theirs by right.
1.2 Illegal downloading: from Napster to peer-to-peer
In 1998, the first free sites for downloading mp3 audio files
appeared, including Napster in 1999,
which made it possible to easily share file directories between
Internet users. In under three years,
60 million users illegally exchanged over 1.5 billion titles
(SODEC, 2002, p. 22). However,
Napster’s limitation lay in its centralization. Since the data it
contained was not replicated
anywhere, the operation of the network depended on the central
server. If it failed, community
members had no way of establishing a connection with other
members. So in 2001, when the courts
found for the music industry majors,1 who saw the sharing
system as a threat to their control over
music distribution, Napster was forced to get rid of its central
server, provoking the collapse of its

Internet community.
In the meantime, Internet users came up with alternative
solutions. To avoid repeating the Napster
experience, Internet users created sharing systems using
multiple servers, ensuring that they
remained independent of one another. In the event of an attack
on one server, the community could
remain connected via the remaining servers. The idea was
refined and developed, from the principle
that having more servers ensures a robust network, leading to
the complete decentralization of
sharing systems: peer-to-peer.2 With this decentralized method
of sharing, illegal downloading
took off, was refined and diversified, to the point that it became
completely uncontrollable.
1.3 Plummeting CD sales
At the same time as illegal sharing networks were being
developed, CD sales in all markets went
into freefall. For example, in the U.S., the largest music market
in the world, CD sales dropped
from 730 million units in 2000 to 206.4 million in 2013, a
decline of almost 72%, according to
1 “Majors” refers to international record companies that
assume, in whole or in part, the technical and financial
responsibility for
producing, manufacturing, promoting and distributing recorded
music (Ménard, 1998, p. 36). Until very recently, there were
four
majors, who together accounted for three quarters of music
industry sales worldwide, even over 80% in Europe and the
U.S.:

Universal Music Group, Warner Music Group, Sony-BMG and
EMI Group (Curien and Moreau, 2006, p. 23). In November
2011,
Universal Music Group and EMI Group merged, further
increasing the level of concentration. However, this oligopoly
now has
a major competitive fringe made up of thousands of small
independent producers.
2 In peer-to-peer networks, members play the role of both client
and server. As files are downloaded by a user, they become
available
for download to other users. The particularity of files that
circulate on peer-to-peer platforms, .torrent files, is that they
are broken
down into small pieces. Once users receive a piece of a file they
are downloading, they immediately and automatically start
sharing this piece with other users. Each new download of a file
increases its availability so that other members of the
community
download it, thereby creating a vicious circle of downloading.
Sharing is done directly between users, who have access to all
files
downloaded by each of the other members of the peer-to-peer
community. Controlling the files available on these systems is
therefore impossible, given the fragmentation of servers that
make them available. The only limits to sharing are the size of
the
community and the number of files all members have.
© HEC Montréal 2

Music Service
Nielsen SoundScan data (Statistic Brain, 2014). According to
the same data, in Quebec, where the
decline in CD sales hit later and was less pronounced, from
2004 to 2013, sales dropped by half,
going from 13 million units sold in 2004 to 6.1 million in 2013.
Across Canada, CD sales went
from 36.6 million to 11.7 million during the same period, or a
drop of 68% in nine years (Fortier,
2014).
While the drop in CD sales cannot be directly linked to illegal
downloads because too many
variables were at play,1 the fact remains that one of the
foundations of music industry revenue was
challenged, at the very time the Internet and digitization came
on the scene. As a result, the music
industry needed to look at the fit between how they meet
consumer needs ‒ in other words, creating
value for them with recorded music ‒ and how they generate
revenue for themselves.
1.4 The digital music market
In response, new ways of creating value for consumers are
emerging, such as the sale of digital
tracks and albums and continuous or on-demand streaming of

music. They are inspired by new
music consumption habits that are developing online and the
opportunities of digitization. These
initiatives led to a 1000% increase in the market value of digital
music between 2004 and 2010
worldwide (IFPI, 2011), and this market continues to grow year
after year (figure 1).
Figure 1: Increase in global revenues in digital music from 2008
to 2013 (IFPI, 2014)
In 2013, revenue from digital music accounted for 39% of all
global music revenue (5% more than
in 2012 and 10% more than in 2010) and even represented the
majority of this revenue in three out
of the ten largest music markets. In comparison, in 2013,
revenues from CD sales accounted for
51.4% of music revenue, almost 5% less than in 2012 (IFPI,
2014). This growth trend in digital
music revenue is still far from compensating for the drop in
revenue from CD sales of the past 10
to 15 years (figure 2).
1 On the question of variables at play in the drop in CD sales,
readers can refer to Curien and Moreau (2006, pp. 63-67).
© HEC Montréal 3

Music Service
Figure 2: Drop in revenue from CD sales compared with
revenue growth from digital
music, worldwide from 1997 to 2012 from 2013 IFPI data
(King, 2013)
1.4.1 Music file sales platforms and music streaming services
Among the legal initiatives behind the rise in sales of digital
music, there are platforms for the sale
of digital albums and tracks, such as iTunes and Amazon MP3,
as well as music streaming services,
which include Spotify, Deezer, Rdio and Apple Music, to name
just a few. According to IFPI data,
in 2013, 67% of worldwide revenue from digital music was
generated by downloading music files,
from platforms that sell albums and tracks, compared with 27%
for music streaming services.
Music downloads therefore remain the main source of global
revenue for digital music. However,
streaming services are gaining in popularity on all markets.
Their revenue rose 51% between 2012
and 2013 (figure 3), growth that shows no signs of slowing.
These services offer online music
consumers access to a vast online music library, anywhere, any
time and on any platform. Because
of the growing popularity these services are enjoying and the

approach to consuming music they
offer, they are seriously undermining the illegal offer, which
some observers see as hope for the
music industry.
Figure 3: Online music streaming services (IFPI, 2014)
© HEC Montréal 4
Music Service
In some markets, music streaming services even outperform the
downloading of tracks and albums,
such as in Sweden, France and Italy. The clearest example of
this is Sweden, where 94% of digital
music revenue comes from these services, mainly from Spotify
(IFPI, 2014).
Of these services, Spotify is garnering attention for its
positioning with online music consumers,
differentiating itself in a number of markets from other
streaming services and even from music
downloading services, and for the way it has worked with music
rights holders to make its music

library legally available. The magnitude of the challenges the
service has to tackle in terms of
profitability and compensation for rights holders make it even
more interesting.
2. Spotify’s Origins
The men behind Spotify are Daniel Ek and Martin Lorentzon,
two Swedish entrepreneurs and
music lovers who have had successful careers in the Internet
and information and communication
technologies. In 2006, at turning points in their respective
careers, Ek and Lorentzon decided to
team up to find a technological solution for the music industry.
They were concerned that the
industry was in crisis, at a time when people were listening to
more music than they ever had and
when there was a greater diversity of artists than ever before. In
fact, at the time, the Swedish music
industry, like the industry everywhere else, was in the midst of
a decade of constantly plummeting
revenues. At the same time, the country had long been a hotbed
of pirating. It is in Sweden that
Kazaa was developed, a peer-to-peer downloading software,
and, more importantly, The Pirate
Bay, one of the largest platforms for illegally sharing music
files. In the European elections of
2009, the Swedish pirate party (Piratpartiet) even won 7.1% of
the vote, earning it a place in the
European Parliament.
Ek and Lorentzon wanted to offer something better than
pirating: “Our idea was to create
something that would generate revenue for the music industry
and that would work on any terminal,

that would be like water” (quoted in Beuth, 2011). Rather than
dismissing piracy, they drew
inspiration from it. Daniel Ek describes his brief flirtation with
the illegal downloading site Napster
at the end of the 1990s as being the experience that most
changed him as a music consumer. That
was where he discovered his two favourite bands, The Beatles
and Led Zeppelin. Because of this
experience, he also became part of the generation of 18 to 30
year olds who don’t believe in paying
for music, and who think that it should circulate freely on the
Internet. In fact, in a November 2011
article about Spotify that appeared in Wired, Steven Levy
explains the influence Napster had on
this generation. He says: “Unleashed in a dorm room in 1999
and killed in a courtroom in 2001, it
taught a generation that music should be obtained with
mouseclicks, not money.”
Having experienced it, Ek understands how Napster, The Pirate
Bay and the other illegal
downloading platforms shaped the expectations of this
generation when it comes to access to
music, its uses and how it is consumed. So rather than offering
online music consumers the chance
to buy and own the music they listen to, he came up with the
idea of offering them access to a vast
library of music, that would have all the characteristics of
illegal downloading sites. He took as a
given that the best way to listen to music was to give the public
unlimited access to an exhaustive
catalogue of songs, stored on servers and available online. This
was similar to what Napster had
been offering, except the now-defunct service had used
downloading rather than streaming, was

© HEC Montréal 5
Music Service
slow and often experienced glitches, and users could be traced
and prosecuted. So there was room
for improvement.
2.1 Drawing inspiration from pirating
Before improving on the pirating experience, Ek tried to keep
what worked best on the top illegal
downloading platforms. So he built his service using the same
technology as The Pirate Bay – peer-
to-peer architecture – which enables a very fast rate of transfer
of music files. Spotify functions as
an application downloaded to the user’s hard drive rather than
as an online service, and it draws on
the hard drives of all users. This increases the speed of the
service and relieves the pressure on the
central servers by spreading demand over different
connections.1
2.2 Improving on pirating

But Spotify does more than just draw inspiration from the best
aspects of pirating platforms. Ek
wanted his service to do better than the most popular of these
platforms, to be more efficient,
convenient and accessible. Illegal downloading platform
interfaces are often not clear or inviting,
and users cannot always create their own accounts, adapt the
platform to their preferences or use it
on any device. Plus the music offer is not always as diverse or
complete as users would like. So
opening an account, downloading a program and being able to
listen to any of the 30 million tracks
on Spotify is what differentiates the company from illegal
alternatives.
This is in addition to Daniel Ek’s obsession to create an
endlessly faster and higher performance
platform, striving to keep diminishing the time between click
and sound. He combines a number
of technologies to accomplish this: a local cache memory, peer-
to-peer sharing, as noted above,
and traditional streaming. When consumers click on a song, it
plays immediately, as if it were
already on their hard drive. In order for listeners not to notice a
delay between the click and the
sound, songs have to be streamed within 200 milliseconds, or
the time it takes for the human brain
to perceive the slightest delay. When building Spotify, Daniel
Ek told himself that if he could
manage to deliver this speed to consumers, it would be as if
they owned all the music in the world
on their computer hard drive.
With this superior technology infrastructure and its presence on
multiple platforms, including

mobile platforms, Spotify encourages consumers to abandon
pirating and may eventually lead them
to want to pay for the service. In fact, Ek believes that “An
entire generation had rejected the idea
of ownership […] If not files, maybe they would pay for
convenience” (Greeley, 2011). But what
distinguishes Spotify from pirating platforms is also, and most
importantly, the ability for Internet
users to get unrestricted access to music online, without
breaking the law.
3. Legal Constraints
Daniel Ek couldn’t have launched Spotify without entering into
agreements with the rights holders
to the works his service would provide access to. He wanted to
demonstrate that it was possible to
1 This approach has allowed Spotify to build and grow, and, in
April 2014, the company announced that its even higher
performance
servers could gradually replace peer-to-peer technology.
© HEC Montréal 6

Music Service
work with the companies that represent rights holders. But after
his company was launched, he met
with resistance from record companies, which were not taking
him seriously or buying into his
model. But Daniel Ek was 23 years old at the time and was
confident no challenge was too great.
So while he thought it would take him less than three months to
negotiate an agreement that would
authorize him to use all European music, it was only in October
2008, more than two years after
Spotify was founded, that it was finally launched in Norway,
Sweden, France, the U.K. and Spain.
Its launch in Finland, Denmark and the Netherlands followed
soon after. It took almost three more
years to finalize agreements with rights holders in the U.S.,
which was accomplished in July 2011,
two years later than anticipated. And legal issues again meant
that it took until November of the
same year for the service to be offered in Austria, Belgium and
Switzerland, and until March 2012
for it to be available in Germany.
In Canada, Spotify only managed to reach an agreement with
copyright lobby groups to launch its
service in September 2014. These groups believed that the
service devalued music and asked for a
higher rate each time music was streamed. The rate negotiated
is not as high as the lobby groups
would have hoped, but is comparable to what was negotiated in
other countries – for every 1000
streams, rights holders receive 10.2 cents – and Spotify
committed to promoting Canadian talent
on the Canadian version of its platform. A channel specializing

in Canadian content was created to
do just that.
4. Spotify’s Strategies
Spotify is not the first or the only legal music platform on the
Internet, nor is it the only service
that offers access to an online repertoire of music. It faces
competition in every market. The French
company Deezer, its main competitor in France, and the
American platform Pandora, which still
beats out Spotify in the U.S., along with Rdio, KKBOx, WiMP
and Tidal, to name just a few, all
offer online music services that, while markedly different, are
interchangeable for consumers
(exhibit 1: Comparison of the Main Online Music Streaming
Services). What’s more, in recent
years, the Internet and electronics giants, particularly Amazon,
Google and Samsung, have
launched music streaming services of their own, the most recent
addition being Apple with Apple
Music, which was released in June 2015. Apple Music presents
a real threat to Spotify. Both
services, which are available for the same price, have a
comparable offering: their musical
repertoires are similar in size, the two companies offer a radio
service as well as features for sharing
and discovery. However, while Spotify has an established
reputation in the world of music
streaming, Apple Music has a considerable advantage in its
dealings with record companies, its
availability in 110 countries (compared to 58 for Spotify), its
800 million users already acquired
via iTunes and greater risk tolerance afforded by its position in
the Apple family. As the service is

still in its free trial period, it is not possible to comment on its
performance, but it is clear that Apple
Music will be a force to be reckoned with in the online music
services sector. And this is in addition
to the omnipresence of iTunes, which is substantially different
from Spotify in terms of how its
users listen to and buy music, but whose offer clearly competes
with Spotify’s. To stand out in a
highly competitive market, Spotify needs to be in line with
current practices, while demonstrating
originality.
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4.1 The “freemium” model
Spotify’s service falls under the “freemium” model. Users can
access music in the catalogue for
free and listen to it on a phone, tablet or computer, in return for
being exposed to sound and visual
ads for a few minutes every hour. Users previously had a ten-
hour monthly listening limit and could
only listen to a track five times, but Spotify recently lifted the

restrictions on this free option to get
an edge over its serious online music competitors. Users can
also access the Premium service for
$9.99 per month, with no further commitment. They enjoy
unlimited access to the Spotify
catalogue, without ads or interruptions. The music is available
with superior sound quality for
listening on computers, phones, tablets, and, since 2013,
televisions. In addition to being available
on all platforms, Spotify is also optimized for the most popular
electronic environments.
Since 2011, Spotify users have also had access to Spotify radio,
which encourages discovery by
playing music based on the user’s preferences.
Recommendations systems (like the “Discover”
page, which offers users new titles based on the music they
listen to and favourite artists) and
thematic playlists are also available on Spotify to personalize
the use of the service and promote
exploring the repertoire.
4.2 Social media integration
In September 2011, Facebook integrated to Spotify and vice
versa. The goal of this integration is
to allow Spotify users to share the music they listen to with
their contacts via Facebook and to
encourage those who do not yet use Spotify to subscribe to it.
Spotify users have the option of
automatically publishing what they are listening to in Spotify on
their Facebook page, and this
information then appears on their friends’ news feeds. Their
friends who use Spotify can then listen
to the songs, and those who don’t have an incentive to subscribe

to the service.
This partnership also benefits Facebook, because exchanges
increase when music is shared, as
Daniel Ek points out: “Facebook is the largest distribution
platform in the world today. What
Facebook enables is content sharing. Mark Zuckerberg realized
that Facebook’s value lies in
interactions between people. And music is one of the most
social things there is” (Beuth, 2011).
Music is also closely tied to identity. People can express who
they are by letting others know what
they are listening to, whether by wearing a T-shirt or a hat with
the name of a band or artist or by
sharing music on Facebook.
To get the greatest benefit from integrating music to its site,
Facebook did not offer Spotify
exclusive access to the some 900 million users it had at the
time; the popular social network has
many other music partners that are Spotify’s competitors. But
Spotify seems to have made its
presence felt. According to Facebook vice-president Dan Rose,
it has two advantages over other
services. The first is that the platform has taken the social
network aspect the furthest, starting from
its initial design. Sharing music between users is encouraged in
any form. The second is that the
company has a business model that fits perfectly with the sort of
discovery that Facebook was
designed to enable. If Facebook users see through their news
feed that a friend is listening to a
song, an album or an artist and they want to listen, they can
easily do so by going straight to Spotify.
The site, with its free access to a catalogue of over 30 million
titles, is designed to enable

exploration, showcasing the repertoire and the discoveries users
can make. At the same time, its
free offer is a catalyst for these discoveries, because unlike
platforms such as iTunes, where you
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have to pay to listen to a whole song, there are no barriers of
cost or access to the music experience
of Spotify’s free offer.
In November 2011, two months into the partnership between the
two companies, some sources
suggested that Spotify had gained some four million users in
countries where both services are
available. In 2012, Spotify announced that users who link their
Spotify account to their Facebook
account are three times more likely to become paying
subscribers.
4.3 Creating value jointly with consumers
The social networks of Spotify, Facebook and Twitter are places

for sharing many playlists created
by the company’s employees or users, based on a theme, genre
or emotion. For example, when
spring arrived in 2014, Spotify asked its some 829,000
subscribers via Twitter what they were
listening to and encouraged them to share their current playlist,
offering the incentive that this list
could then be promoted by the company. Spotify does the same
thing on Mother’s Day, Valentine’s
Day, Halloween, on a sunny or rainy day – any occasion that
presents itself. Spotify users share
playlists every day on Twitter. The company even opened a
Twitter account with the name
@SpotifyPlaylists, where it shares its playlists and where users
can share theirs. A group of those
users, which adopted this company-initiated practice, even
created the hashtag #thursplay to
encourage other users to publish playlists every Thursday.
These compilations give users the chance to discover new songs
and share their tastes. They also
ensure that less explored parts of the repertoire are promoted,
because with a repertoire of over
30 million songs to choose from, users can have a hard time
figuring out what to listen to. It lets
them discover other people’s recommendations, based on
criteria that appeal to the user, and to
make their own recommendations, making them feel as though
they are playing a role with other
Spotify users, while asserting their tastes, and, in turn, their
identity. For Spotify, this has reduced
some of its operating costs, because the company does not have
to promote its repertoire on its
own, and it also builds customer loyalty and commitment.
Spotify goes even farther in getting customers involved. In

2011, the company launched a
development platform that allows professional and amateur
developers to create applications for
Spotify. Spotify already has a team of developers for such
applications, but they thought it was a
good idea to get outside developers involved to generate new
ideas and respond to needs that users
have identified, which the company never could have.
Developers have access to a platform for designing applications
without worrying about getting
the licences to access music repertoires. With this obstacle out
of the way, they can let their
imagination run wild, to everyone’s benefit. TuneWiki and
MusixMatch, for example, provide users
with lyrics to the songs available on Spotify. Songkick creates a
calendar of concerts likely to be of
interest to users based on the music they listen to on Spotify.
MoodAgent offers instant access to
playlists that match the user’s mood. The Complete Collection
displays album covers for music
played on Spotify. Classify allows users to explore classical
music.
These applications add to the value the company creates,
because they are made available to other
users, once the company has approved them. They promote even
more widespread use of the music
available on Spotify and a more thorough exploration of
repertoires. A sure sign that they add to
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the value created by Spotify, in their first four months of
existence, Spotify applications were used
for 13 million hours. For example, the playlist generator
MoodAgent generated on average some
3.5 million playlists per week.
On social networks, specifically Facebook and Twitter, users
share opinions about these
applications. Spotify encourages these discussions about
applications, occasionally asking users
for their favourite application. In being asked to share their
opinion, users help build the popularity
of applications and even create value for the company.
Spotify therefore plays the role of facilitator for these activities
and instigator for its customers,
who are immediately inclined to help create value for the
company. It creates the mechanism, such
as the platform for developers or the use of social media,
harnessing customer willingness to get
involved in activities that create value. These activities help
Spotify improve, extend its reach,
increase its popularity and promote its music repertoire.
4.4 Brand partnerships

To increase revenue, Spotify also partners with companies that
will pay for access to its consumers
and their attention. First, advertisers can disseminate messages
via the service, in a number of audio
and visual formats.1 In addition to offering an environment that
is advertising friendly, Spotify
offers advertisers the ability to target their potential consumers
from data the company has collected
(demographic and geographical data, and data on their musical
tastes). The company also provides
advertisers tracking functionality and detailed reports on how
their ad was used. Second, sometimes
Spotify has closer and more intimate relationships with brands,
as is the case with Lucozade, Coca-
Cola, Reebok, Volvo and Ford (see exhibit 2: Spotify’s
Commercial Partnerships). In such
cases, both the partner brand and Spotify benefit from the
other’s audience. Spotify has gained
many customers through these partnerships that it wouldn’t have
reached otherwise.
5. A Meteoric Rise
Spotify has had a meteoric rise since it was founded thanks to
its functionality and partnerships.
From the end of 2012 to the middle of 2015, the company
expanded its network from 13 to
58 markets, including Germany, France, the U.K. and the U.S. –
four of the largest music markets
– along with the Scandinavian countries, Turkey, Taiwan and
Australia. In 2015, it had 75 million
active users, including 20 million paying subscribers. The
company, with headquarters in the U.K.
and Sweden, and offices in 18 countries, had 300 employees in
2012 and now has over 1200.

5.1 A strong influence: from ownership to access
This meteoric rise is proof that the company has effectively
responded to the needs of online music
consumers. Spotify’s rapid adoption by millions of Internet
users has had an impact on the entire
1 Here is how the Spotify website sells the benefits of buying
ad time or space on its service: “Everyone listens to music. You
can
be sure your customers do too. But unlike commercial radio,
Spotify makes it possible to listen to music instantaneously. At
any
time of the day, anyone can listen to the music that makes them
happy. Our audience knows that ads are what fund our legal,
free
online music service and that allow us to compensate the artists
they love. Without advertisers, there is no free music. Does this
sound like an environment for your brand?”
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music industry. In fact, Spotify offers a different approach to
consuming music that is gradually
taking over. With services like iTunes, people acquire
ownership of a piece of music, while with
Spotify, people acquire access to a song, a bit like renting it. In
the U.S., in 2010, before Spotify
came on the scene, almost 80% of music industry revenue from
the digital market came from the
sale of songs and albums, mainly from iTunes. In comparison,
in Sweden, two years after Spotify
was launched, the sale of songs and albums represented only
20% of digital music revenues, while
60% came from on-demand music streaming, mainly from
Spotify. In 2013, 94% of digital music
revenue came from music streaming services in Sweden.
With the popularity of this approach to consumption, digital
music now accounts for 70% of music
industry revenue, and Spotify has become the leading source of
music revenue in this country
(physical and digital media combined). Clearly this approach to
consuming music is a better fit for
the expectations and needs of online music consumers. In
Sweden, apparently no one brings a
computer or hard drive to a party anymore. They just connect to
Spotify from any terminal with
Internet access. The Scandinavian countries (Denmark, Norway
and Sweden) have demonstrated
the streaming model’s potential to revitalize the music industry.
In 2013, the Swedish music market
saw growth of 5.7% attributable to streaming revenue,
Denmark’s grew 4.7% and Norway’s grew
2.4% (IFPI, 2014).

6. The Problem of Monetizing Music
While Spotify has grown since it was founded, particularly
since entering the U.S. and striking up
its partnership with Facebook, and while it plays a decisive role
in the entire music industry, the
company is not yet profitable. It does create value for over 75
million online music consumers in
58 countries, but its costs still exceed revenues.
6.1 Spotify’s net revenue
Spotify reported earnings of 747 million euros in 2013, an
increase of 73.6% compared with the
430 million euros earned in 2012. However, its losses also
increased by 16.4%, rising from
80 million euros in 2012 to 93 million euros in 2013, according
to Spotify’s most recent
consolidated financial statements. Its net losses can be
represented in the following graph (figure 4)
as declining from 87 million euros in 2012 to 58 million euros
in 2013, but this is largely
attributable to its 39 million euros in stock options. According
to experts, operating losses, which
were 93 million euros in 2013, are a better indicator of
Spotify’s performance (Dredge, 2014). In
other words, Spotify had a deficit of 93 million euros in 2013.
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Figure 4: Spotify’s revenue and net income from 2008 to 2013
(Statista, 2015)
6.2 Capital investments and cumulative losses
Since its beginnings, Spotify has accepted close to $300 million
in outside capital from investors
such as Horizon Ventures, Li Ka-Shing, Northzone, Creandum,
Wellington Partners, Sean Parker,
Founders Fund, Goldman Sachs and Coca-Cola. However, it has
accumulated losses of over
$200 million, according to the firm PrivCo, which studies the
performance of private companies.
Its losses are indeed growing and accumulating, but there is also
growth in revenue, and investors
continue to believe and invest in the project. In an industry as
early in its development as music
streaming, some experts are even talking about progress
(Brustein, 2014).
6.3 Spotify’s revenue and cost structure
To understand Spotify’s inability to reach profitability and the
losses that are piling up year after
year, one needs to understand its revenue and cost structure. Of
the 747 million euros in revenue

in 2013, 91%, or 679 million euros, came from subscriptions to
the Premium service. The
remaining 68 million euros are from advertising revenue
attributable to users of Spotify’s free
service. Given that the company ended 2013 with 36 million
active users, 8 million of whom
subscribed to the Premium service and 28 million of whom
subscribed to the free offer, 91% of the
company’s revenue comes from 22% of users who pay for the
service.
On the cost side, to legally offer such a vast repertoire of music
to Internet users, Spotify must pay
rights holders of this music: lyricists, composers and other
intermediaries involved in creating,
producing and promoting musical works. According to Spotify,
70% of its gross revenue goes
directly to rights holders. This has amounted to $3 billion since
the service was launched (including
$500 million in 2013 alone). Spotify’s other most significant
costs are technology related, i.e., the
cost of hosting and storing data and the cost of the bandwidth
required to stream such a large
volume of music on demand. These costs vary depending on the
number of users, and fortunately
they increase in line with revenue growth. This is in addition to
the fixed costs of developing the
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on-demand music streaming service and the underlying
infrastructure. These are expenses related
to programming and maintaining the streaming platform, the
database of over 30 million songs and
the company’s websites, as well as costs related to its offices in
18 countries and salaries for
1200 employees.
6.4 Streaming versus downloading: the rights holders’ cut
Despite the fact that Spotify hands over a seemingly generous
70% of gross income to music rights
holders, what ends up in their pockets each time a song is heard
is a micro payment. It is hard to
accurately establish the amount distributed to rights holders
when their songs are used by Spotify.
In December 2013, the company announced that it had paid
music rights holders between $0.006
and $0.0084 every time a song was heard, or between $6 and $8
when a title was heard 1000 times,
depending on the country where the Internet user listened to the
music, the type of subscription
(free or paying) as well as Spotify’s sales figures. How this
amount is distributed among the rights
holders of the title in question (the producer, lyricist, composer
and performer) and other
intermediaries varies according to commercial practices in each
country and the contracts signed
between the lyricist, composer, producer and/or record

company.
The amounts paid by Spotify are similar to, and even higher
than, the royalties paid by comparable
music streaming services, such as Rdio, Pandora and Deezer
(see exhibit 1: Comparison Table
of the Main Music Streaming Services). In 2013, Pandora paid
48% of its $600 million in net
income to rights holders, with an estimated rate of $0.0011 each
time a song was streamed. Like
Spotify, Pandora is not profitable. While competitive, the
royalties paid by Spotify are very low
compared with those paid by certain local services, as shown in
figure 5, which was prepared by
an independent record company to show what it earns from
music streaming, and lower still than
revenue from digital music downloading platforms, such as
iTunes:
Figure 5: Music streaming service payouts, according to an
independent record company
(Resnikoff, 2014)
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In comparison, iTunes, for example, where the price is a
standard $0.99 per track, pays $0.69 for
each title sold, which is split among intermediaries and rights
holders (digital distributors, record
companies, producers, performers and songwriters). The figure
below (figure 6) shows the number
of titles that have to be streamed on the different music
streaming services to equal the sale of a
single title on iTunes, in terms of revenue for the same record
company. According to this data, a
track would have to be heard around 135 times on Spotify to
equal it being downloaded once from
iTunes.
Figure 6: Number of times a track needs to be streamed to equal
the sale of a title on iTunes
(Resnikoff, 2014)
Some claim that the situation is even worse for emerging
musicians. In 2013, folk rock musician
Damon Krukowski calculated that one of his songs would have
to be played 47,680 times on
Spotify or 312,000 times on Pandora to bring in an amount
equal to the sale of a single album (with
10 to 12 tracks), or between $10 and $15 (Brustein, 2014).
Many music rights holders have criticized Spotify’s
compensation, and a number of leading artists,
such as Adele, Radiohead, Black Keys and, more recently,
Taylor Swift, have refused to have their

music on Spotify or on other music streaming services, because
what they earn each time one of
their songs is played is much too low compared with what they
would earn if they sold the song.
Taylor Swift, however, accepted that her 1989 album be made
available on Apple Music, after
managing to make the company go back on its decision to not
pay music rights holders during its
free three-month trial period. Indeed, in an open letter to Apple,
in which she called out the injustice
of a service that exists thanks to the work of music rights
holders but that refuses to compensate
those same rights holders, Swift convinced Apple to pay
creators, producers and performers for the
use of their music during the trial period. In response to Apple’s
decision, Taylor Swift agreed to
make her most recent album accessible on Apple Music, but this
is an exception to the rule, in
response to Apple’s reaction, as the artist continues, like many
others, to deny Spotify and other
music services access to her music. Like Swift, in November
2011, the British distributor
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STHoldings, which represents over 238 independent record
companies, decided to remove its entire
catalogue from Spotify, alleging that while on-demand music
streaming services promote music to
millions of people, they bring in very little money, devalue
music and are likely to cannibalize
traditional digital sales revenues, although no study has shown
this yet.1
Without being able to establish a direct causal link with the rise
of streaming, one can observe that
downloading music tracks and albums has, for the first time
since its beginnings, declined slightly
since 2013 and the decline continued in 2014. In 2013, revenue
from downloading tracks and
albums dropped 2.1% worldwide, although it still accounts for
67% of digital music revenue (IFPI,
2014). To give just a few examples, in Quebec, sales of tracks
and albums declined 12.8% and
3.7% respectively between 2013 and 2014. Across Canada, the
drop was in the order of 12.4% for
digital tracks and 4.4% for digital albums. In the U.S., it was
12.5% for digital tracks and 9.4% for
digital albums (Observatoire de la culture et des
communications du Québec, 2015). Not escaping
the trend, for the first time Apple reported a drop in sales of
digital music on iTunes of 13% to 14%
(Karp, 2014).
The iTunes model, leader in legal music downloading
In spite of this drop, iTunes is undeniably a world leader in
legal downloads of music. In 2003, the
release of the iPod/iTunes duo allowed Apple to quickly
dominate the still emerging market of legal

music downloading and become part of the music consumption
habits of millions of people around
the world. Paying $9.99 for albums and $0.99 for tracks became
the standard for most online sales
platforms, a drop in price compared with albums sold in
physical format in the store, but an increase
considering the competition iTunes created for illegal
downloading platforms, where all music was
being exchanged for free. Since its launch, iTunes, which is
available in 147 countries and offers a
catalogue of 37 million titles, has 800 million users registered
with a credit card and has sold over
35 billion titles, the equivalent of 4.9 songs per person on the
planet. It pockets 30% of the revenue
from each title sold, paying out $0.69, which is split among all
other players in the supply chain, from
the digital distributor to the songwriter.
So in the world of digital music, making works available on
Spotify, Rdio, Deezer, Pandora and
other platforms is not profitable for rights holders, not even for
international stars, when compared
with selling tracks and albums on legal downloading platforms.
But in a context where consumers
are migrating toward music streaming platforms because they
feel they better meet their needs than
legal downloading platforms like iTunes – when they do not
simply move on to illegal platforms –
many rights holders agree that having their work on Spotify is
still better than being pirated. And
it has been proven that legal music streaming services, because
they are similar to what illegal
music download platforms offer in terms of accessibility, put a
substantial dent in pirating.
Sweden’s GfK Research showed in 2013 that 90% of Spotify’s

paying users and 70% of users of
its free service download music illegally “less often” since
joining Spotify (IFPI, 2014).
1 On the contrary, a March 2012 study conducted by Nielsen on
the evolution of on-demand music streaming since 2005 showed
that the increase in this method of consuming music did not
affect legal downloads of albums and tracks. In other words, no
correlation can be drawn between these two uses of music
(Pham, 2012).
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6.5 Increasing revenues to offer better compensation for music,
but how?
In spite of these benefits, music rights holders would like to be
better compensated for the use of
their music on these platforms. If Spotify wanted to pay higher
royalties, it would need to raise the
price charged to consumers. Yet by charging consumers more,
competition from free illegal offers

would become stronger, and the company would lose market
share. Striking this balance is a
constant challenge, one that the company has not yet managed
to tackle. Spotify could also rely on
more paying subscribers, given that the Premium service is a
much more substantial source of
revenue than ad revenue associated with the free service.
Spotify’s share of paying subscribers ranges between 20% and
27%, the peak of 27% being reached
in the middle of 2015, when 20 million of the 75 million users
paid to access the service. That
means that the 55 million other users are satisfied with the free
offer. And rightly so. Users of
Spotify’s free offer are among the most spoiled of all music
streaming service users. There are no
limits on how much time they can spend listening to music, they
can access it from any platform,
and advertising is well integrated and targeted. In comparison,
Deezer, which makes its free offer
available only via computer, has 38% paying users, whereas
WiMP simply doesn’t have a free
offer, and does relatively well in its market.
The 75% to 80% of users who do not pay to access the 20
million songs available on Spotify
generated, through ad revenue, less than 10% of its annual
income in 2013. In comparison, in the
entire music industry, the share of revenue related to users of
the free offer of music streaming
services tended to be higher and handily exceeded 10% of
revenue (figure 7). The proportion of
paying Spotify subscribers is therefore much lower when
compared with that of other music
streaming services.

Figure 7: Revenue share related to the types of use (paying and
free) of streaming services
throughout the music industry (Brustein, 2014)
The company remains optimistic about its ability to generate
more revenue and better compensate
music rights holders. According to Daniel Ek, Spotify has
already proven its ability to create value
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for users, and it knows that the more time people spend using its
service, the more inclined they
are to become paying subscribers. As the company reaches more
users, the proportion of them who
will pay to access the service will grow, revenue will climb and
the amounts paid to music rights
holders will increase proportionally (Dredge, 2014).
To increase the share of paying subscribers, for a few years
Spotify has been trying to bundle

subscriptions to its service with other complementary services.
The company has signed some
30 bundling agreements, the most important of which was in the
U.S. with phone service provider
Sprint. Sprint will offer family plan subscribers a reduced-rate
subscription to Spotify and actively
promote it, which should lead to a significant increase in the
number of paid subscribers to Spotify
in the U.S. and in turn increase revenue.
6.6 Solving the profitability impasse
While increasing the number of Spotify users could lead to an
increase in royalties paid to rights
holders, achieving profitability will not be quite so simple.
Spotify pays rights holders a fixed
percentage of its gross income, or 70%, rather than a fixed rate,
as similar services do. As a result,
an increase in the number of its subscribers, which results in a
rise in gross income, increases its
costs at the same rate (figure 8).
Figure 8: Growth in Spotify’s revenue and costs from 2009 to
2012 (Brustein, 2014)
For a company running a deficit, with losses accumulating year
after year, the increase in gross
income needs to be significant for it to be able to cover its costs
and eliminate its accumulated
deficit with its 30% margin.
Spotify therefore faces quite a paradox: on the one hand, its

service is causing a sensation among
consumers, and it has seen a meteoric rise since it was founded.
It easily outpaces the other legal
online music services, such as Deezer, Pandora and Rdio, on
many markets. And in spite of some
reticence, rights holders are making their music available on the
platform, figuring that it is better
to have titles on Spotify than on illegal downloading platforms,
but hoping that this use of their
music will end up paying more one day. This allows Spotify to
offer one of the most complete
music catalogues on the market. So Spotify has achieved a
certain success.
On the other hand, the company has not yet turned a profit, and
despite the fact that it accepts
running an annual deficit to pay rights holders, what they earn
is not enough. Even sharing 70% of
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its revenue with them and racking up losses, Spotify is not
contributing to the viability of those
who create, produce and promote music. It is drawing

consumers away from illegal downloading
platforms, of course, but the revenue it manages to generate is
practically symbolic once in the
hands of music creators, producers and promoters. Paying rights
holders more would mean
increasing the contribution for consumers, at the risk of losing
them to free, illegal platforms.
So like the entire music industry, Spotify is struggling with the
issue of the very value placed on
music and the difficulty of monetizing it. How will this impasse
be broken? How can they keep
giving consumers what they consider value – free music,
instantaneity, accessibility, diversity and
flexibility – while monetizing that value to better compensate
rights holders and achieve what any
company aims for: profitability? The outcome of this struggle to
create value, which music
consumers and rights holders play a part in along with Spotify’s
legal and illegal competitors, is
far from simple. To reconcile the interests of consumers with
those of rights holders, to reconcile
the values of a generation of Internet users with the value of
music, while aiming for profitability
and differentiating itself from the competition, Spotify will
need a great deal of creativity and
strategy.

2015-09-11
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Exhibit 1
Comparison of the Main Music Streaming Services
Service Launch Reach in
2015
Number of
subscribers
in 2015
Number of
paying
subscribers to
Premium
service in 2015
and as a
percentage
Cost/month for
Premium
service
Free offer Percentage of
revenue
allocated to
music rights
holders

Titles in the
catalogue
(in millions)
Profitable
2006
(Sweden)
58 countries 75 million 20 million
27%
$9.99 Yes, on
computer,
without
limitation, with
ads
70% of
revenue
30 No
June 2015 110
countries

11 million trial
subscribers
Unavailable $9.99 Yes, with
limitations,
without ads
Unavailable 35 Unavailable
2010
(U.S.)
85 countries Unavailable Unavailable $9.99 Yes, but only
for radio
streaming
Unavailable 32 Unavailable
2007
(France)
180
countries
16 million 6 million
38%

$9.99 Yes, on
computer only,
with ads
Unavailable 35 Yes, in
France
2000
(U.S.)
3 countries
(U.S.,
Australia
and New
Zealand)
1.2%
$4.99 Yes, on
computer and
mobile
devices, with
ads
48% of

revenue
1 No
2014
(U.S.)
1 country
(U.S.)
110,000 to
200,000
110,000 to
200,000
100%
$9.99 No 65% of
revenue
20 Unavailable
2004
(Taiwan)
7 countries

in Asia
20%
$9.90 Yes, online
only with
limitations,
with ads
10 Unavailable
2010
(Norway)
5 countries
in Northern
Europe
580,000 580,000
100%
- Including
17,000 Hi-Fi

3%
$4.99 (Basic)
$9.99 (Premium)
$19.99 (Hi-Fi)
No Unavailable 25 Unavailable
November
2014
35 countries
(Europe and
North
America)
Unavailable Unavailable $19.99
(high-quality
streaming)
No Unavailable 25
+ 75,000
videos
Unavailable
© HEC Montréal 19

Music Service
Exhibit 2
Spotify’s Commercial Partnerships
In addition to partnering with advertisers, who place their ads
on the music service in a number of
audio and visual formats, Spotify sometimes enters into closer,
more developed relationships with
brands. In these cases, both the partner brand and the service
benefit from each other’s audiences.
Most significantly, by being associated with music, which is an
important expression of identity,
the brand takes on some of that identity. It increases its value,
takes on a new personality, one users
are more likely to identify with.
1. Lucozade
For example, in March 2011, Spotify partnered with Lucozade,
the leading energy drink in the
U.K. A promotional campaign ran online on social networks,
primarily targeting 16 to 24 year olds,
who account for a significant share of Spotify users. The public

was informed that when they
bought a bottle of Lucozade from March 1 to May 31, they
could win one of a thousand Premium
subscriptions to Spotify as well as other prizes related to music
or Lucozade. Every bottle sold
during that period contained a promotional code, giving
consumers access to exclusive content
from Spotify on the Lucozade website, such as playlists created
by popular artists who took part in
the campaign. For example, artist Tinchy Stryder shared songs
that inspired him, and consumers
were encouraged to vote for their favourite song. They could
also play online DJ and remix songs.
When consumers took part in these activities, they became
eligible to win one of the prizes.
This partnership provided Spotify with new users and allowed
Lucozade to boost its image with
existing consumers and attract new ones, no doubt won over by
the music they could access by
taking part in the contest. Both companies have reported being
satisfied with this partnership. Adam
Williams, Spotify U.K.’s director of sales, said that there was a
great deal of synergy between the
brands. Andy Mahoney, Lucozade brand manager, said that the
partnership came at the right time
for both brands.
2. Reebok, Volvo and Ford
In April 2012, Spotify announced that it would take
partnerships further with brands that wanted
to leverage Spotify technology to offer their customers music
services. Since then, it has signed an
agreement with Reebok, which offers playlists for runners. It
also entered into partnerships with

Volvo and Ford to integrate Spotify services in both brands’
vehicles, with touch and voice controls
to choose music, change tracks and create playlists, while
remaining focused on driving. These
latest agreements will add value to the two brands’ vehicles and
significantly grow the number of
Spotify users, particularly thanks to Volvo, which would like to
offer the service to customers for
free.
3. Coca-Cola
A partnership was also created between Spotify and Coca-Cola,
resulting in the Coca-Cola
Placelists application. The application, which also works with
Facebook Places, encourages teens
to associate songs from the vast Spotify repertoire with places
and events: a neighbourhood café
or park, a tourist destination on the other side of the planet or a
World Cup soccer game. The
application’s other users agree or disagree with a song being on
the list for the place or event. New
© HEC Montréal 20
Music Service

playlists are thus created collaboratively via Spotify, lending
the sites and events a tone or ambiance
and offering songs context.
For Coca-Cola, Spotify is becoming a way to keep up a
conversation with young people, tapping
into their universal passion for music, and a way to associate
Coca-Cola with the music experience,
as Joe Belliotti, director of entertainment marketing at Coca-
Cola, explains: “We want to combine
the physical experience of drinking a Coke with the virtual
experience of listening to, discovering
and sharing music. Our ambition is to have a Placelist
associated with everywhere Coca-Cola is
enjoyed.” Spotify technology was the perfect way to achieve
this goal, because it uses music as a
connector and offers a platform for discovering and sharing new
music. For Spotify, this is another
way to attract new customers, leveraging collective value
creation with users and remaining in line
with its desire to democratize music.
These strategic partnerships with Lucozade, Reebok, Volvo,
Ford and Coca-Cola, to name only
those, help extend Spotify’s reach beyond the markets the
company normally targets and introduce
the service to ever-increasing numbers of people.
© HEC Montréal 21

Music Service
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COCA-COLA COMPANY (2014). “Every Song Has a Place:
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DREDGE, Stuart (2014). “Spotify revenue grew sharply in
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LEVY, Steven (2011). “The Second Coming“, Wired,
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© HEC Montréal 22

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• http://www.apple.com/music/
• www.deezer.com
• https://www.facebook.com/Spotify
• www.kkbox.com
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• www.tidalhifi.com
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• www.wimpmusic.com
© HEC Montréal 23
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http://www.apple.com/music/
http://www.deezer.com/
https://www.facebook.com/Spotify
http://www.kkbox.com/
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http://www.spotify.com/
http://www.tidalhifi.com/
https://twitter.com/%23!/spotify
http://www.wimpmusic.com/Foreword1. Background: A Music
Industry Between Crisis and Opportunity1.1 Music and

technology: a longstanding relationship1.2 Illegal downloading:
from Napster to peer-to-peer1.3 Plummeting CD sales1.4 The
digital music market1.4.1 Music file sales platforms and music
streaming services2. Spotify’s Origins2.1 Drawing inspiration
from pirating2.2 Improving on pirating3. Legal Constraints4.
Spotify’s Strategies4.1 The “freemium” model4.2 Social media
integration4.3 Creating value jointly with consumers4.4 Brand
partnerships5. A Meteoric Rise5.1 A strong influence: from
ownership to access6. The Problem of Monetizing Music6.1
Spotify’s net revenue6.2 Capital investments and cumulative
losses6.3 Spotify’s revenue and cost structure6.4 Streaming
versus downloading: the rights holders’ cut6.5 Increasing
revenues to offer better compensation for music, but how?6.6
Solving the profitability impasseExhibit 1 Comparison of the
Main Music Streaming ServicesExhibit 2 Spotify’s Commercial
PartnershipsReferencesMonographs and periodical articlesOther
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