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A Market Analysis for
Spotify USA, INC.
Full Sail University
Project & Portfolio II: Business and Marketing
December 10, 2023
Page 2
EXECUTIVE SUMMARY
This essay explores strategies for Spotify to expand revenue sources and achieve
profitability. Utilizing secondary research, the report analyzes Spotify's market position,
financial challenges, and the competitive streaming landscape. Despite commanding a substantial
market share with 406 million subscribers, Spotify faces financial intricacies, reflected in a net
income of -732,000,000 Euros and a net profit margin of -6%. (Yahoo! Finance, 2023) The
company's commitment to personalized content and podcasts distinguishes it in a dynamic
industry, particularly appealing to younger demographics. While excelling in content and user
experience, Spotify's financial challenges require strategic management. Success hinges on
addressing financial complexities, maintaining cultural relevance, and navigating competition in
the music streaming landscape. Proposed strategies include content expansion and partnerships,
financial optimization, transparent negotiations on artist royalties, integration of music videos,
and operational efficiency improvements. These recommendations enhance various aspects of
Spotify’s operations, contributing to financial stability and a positive brand image. Strategic
moves, such as video integration, reinforce Spotify's leadership in the dynamic music streaming
industry.
Page 3
OBJECTIVE
This report aims to identify and recommend possible strategies for Spotify to expand
revenue sources while better managing for operational efficiency to drive a recovery in profits.
RESEARCH METHODOLOGY
The information used in this report was gathered using external, secondary research from
the internet and online databases. Methods include analyses of competitors, news articles, and
industry reports. It was collected in December 2023 and is current as of 2023.
RESEARCH AND KEY FINDINGS
Spotify is a Swedish media services provider that is renowned for its music streaming
service that offers a vast library of songs, podcasts, and other audio content. It was founded in
April 2006 by Daniel Ek and Martin Lorentzon and launched in the US in July 2011. (Houghton,
2023) The introduction of digital music has also opened up a whole new world of opportunities
for musicians. “With platforms such as Spotify, Apple Music, and Amazon Music, musicians are
able to distribute their music to a wider audience without the need for a record label. With the
rise of music streaming services, people are no longer limited to listening to music on their
personal devices.” (Igbasi, 2023) For music enthusiasts seeking an immersive and personalized
audio experience. Spotify, the world's leading audio streaming platform, offers an extensive
library of music and podcasts, personalized playlists, and exclusive content from artists across
genres. Elevate your sonic journey with Spotify, where every subscription delivers an
unparalleled blend of discovery, connection, and the promise of a world where music and
podcasts amplify moments, creating an extraordinary soundtrack for every listener. The brand
prides itself on restoring freedom and universal access to music, creating a platform where users
Page 4
can explore their favorite tunes without constraints. (Alonso, 2023) Spotify's commitment to
personalized recommendations and continuous content expansion sets it apart in the competitive
streaming landscape.
In a highly competitive industry, Spotify leads with almost one-third of the global market
share. (Santangelo, 2023) As of the Q3 2023 update, Spotify demonstrated robust revenue
growth, increasing by 17% year-over-year on a constant currency basis. (Yahoo! Finance 2023)
With 406 million subscribers, Spotify commands a dominant market share compared to
competitors like Apple Music, Amazon Music, and YouTube Music. (Santangelo; Bertoni, 2023)
Despite these strengths, financial challenges persist, evident in a net income of -732,000,000
Euros and a net profit margin of -6%, reflecting the need for strategic financial management.
(Yahoo! Finance, 2023)
Spotify's library is a testament to its commitment to content excellence, adding between
49,000 and 100,000 new songs daily. (Peoples, 2023) The brand leverages data analytics and
machine learning to enhance user experiences, offering personalized recommendations. (Spotify
15%
31%
8%
13%
33%
Market Share
Apple Music Spotify Youtube Amazon Music Other Services
Page 5
Engineering, 2023) The expansion into podcasts and audiobooks further enriches the platform's
content variety. The music streaming industry is dynamic, with Spotify at its forefront. “Spotify
hasn’t officially revealed its per-stream rate, but our research combining more than a hundred
testimonials from different artists found that Spotify is averaging a payout of $0.0032 per
stream.” (Yonata, 2023)
Spotify remains culturally relevant, particularly among younger demographics. Spotify's
target market encompasses a diverse audience, with a strong appeal to younger demographics,
including Gen Z and Millennials aged 18-34. Geographically, North America and Europe remain
significant markets. (Larkin) In a psychographic sense, Spotify users appreciate the platform's
personalized experience and freedom of access to a vast audio library. (Gallant)
CONCLUSIONS
Spotify, a global frontrunner in the music streaming domain, currently commands a
formidable market presence with an impressive 406 million subscribers, underscoring its
extensive reach and robust brand loyalty. Despite witnessing commendable recent revenue
growth, the company grapples with persistent challenges in achieving profitability, evident in a
net income of -732,000,000 Euros and a net profit margin of -6%.
Page 6
Operating in a fiercely competitive landscape, Spotify not only contends within the
music streaming sector but also grapples with challenges emanating from a plethora of
entertainment platforms, navigating issues such as piracy and legal intricacies.
Presently, Spotify occupies a pivotal role as the market leader, leveraging its expansive
content library and cutting-edge data analytics. The industry's future trajectory suggests a
dynamic landscape, and an ability to adapt quickly to changes in new technology and consumer
preferences. Strategic endeavors, including exclusive content partnerships and the exploration of
music videos, strategically position Spotify for sustained growth. The company's success in
projected markets hinges on its ability to address financial challenges, maintain cultural
relevance, and navigate intense competition. Spotify's dedication to innovation, user satisfaction,
and strategic marketing are crucial factors in preserving its dominant position and capitalizing on
emerging opportunities.
RECOMMENDATIONS
Spotify should leverage the positive reception of its expanding library by intensifying
efforts to add high-demand content and establishing exclusive partnerships with popular artist
and podcast creators. They should continue to invest in further enhancements to its personalized
recommendation algorithms to provide users with even more accurate and enticing content
suggestions. Spotify should highlight the platforms unique selling point to attract new
subscribers and reinforce brand loyalty.
Page 7
(Piano, 2022)
Embarking on a comprehensive review of operational costs and revenue streams, the
company aims to identify key areas for cost optimization while preserving user satisfaction. To
facilitate this endeavor, a cross-functional team has been established, dedicated to devising
innovative strategies that enhance profitability. This proactive approach recognizes the
importance of adapting to the dynamic market landscape and maintaining financial resilience.
However, the company is cognizant of the risks associated with relying on a limited number of
revenue sources. In response, it seeks to explore new income avenues, such as exclusive live
events, virtual concerts, and merchandise partnerships, as a means of diversifying its financial
portfolio and mitigating vulnerabilities.
One significant concern revolves around artist royalties, where the company
acknowledges the need for transparent negotiations with artists and rights holders. Recognizing
the importance of striking a balance that benefits both creators and the company, these
negotiations aim not only to address financial considerations but also to foster positive industry
relationships. By actively engaging in these initiatives, the company aspires to reshape its
financial model, ensuring sustainability and competitiveness in an ever-evolving market. This
Page 8
multifaceted approach reflects a commitment to adaptability, financial responsibility, and
fostering positive relationships within the industry.
In a strategic maneuver, the company is poised to forge partnerships with video
platforms, ushering in a new era within the Spotify app that incorporates full-length music
videos. This strategic alignment responds to the industry's prevailing trend of heightened video
content consumption, positioning Spotify to offer users a comprehensive entertainment
experience under a single platform. Introducing full-length music videos and strategically
partnering with video platforms is a bold move that provides Spotify with a notable competitive
edge. This not only aligns with the evolving preferences of consumers but also positions Spotify
at the forefront of innovation within the competitive landscape of music streaming. By offering
an all-encompassing entertainment experience, Spotify aims to stay ahead of the curve and
solidify its status as an industry leader.
Complementing this strategic move is a parallel initiative focused on operational
efficiency. The company recognizes the importance of optimizing internal processes and
streamlining workflows to fortify its operational backbone. By leveraging technology to enhance
backend systems, the objective is to achieve a dual outcome: reducing operational costs and
concurrently enhancing overall efficiency. This operational refinement underscores the
company's dedication to not only meeting the demands of a dynamic industry but also ensuring a
sustainable and agile operational infrastructure to navigate the complexities of the digital
landscape.
As Spotify embarks on these strategic initiatives, it is imperative to acknowledge
unknowns and plan for future research to refine and optimize these efforts. Conducting in-depth
market research on user preferences regarding video integration within music streaming
Page 9
platforms is crucial. This research should aim to uncover potential challenges, user expectations,
and the overall impact on user engagement. Understanding how users perceive and interact with
video content will be instrumental in tailoring Spotify's approach to meet evolving consumer
demands.
Soliciting user feedback on operational efficiency measures ensures that streamlining
processes does not compromise the user experience. Continuous improvement based on user
sentiments and preferences will be critical in maintaining a harmonious relationship between
efficiency gains and user satisfaction. This iterative feedback loop will help Spotify fine-tune its
operational strategies for long-term success.
Undertaking both cost-containment and revenue enhancement, Spotify executives should
set a SMART goal of moving its net profit margin into positive territory of +3% in the next fiscal
year. The proposed recommendations offer a myriad of advantages for Spotify, enhancing
various facets of its operations and positioning in the market. The strategic content expansions
and partnerships, coupled with enhanced personalization features, are poised to contribute
significantly to fostering a positive brand image. These initiatives not only attract more users but
also play a crucial role in retaining existing ones. By offering a diverse and engaging content
library, Spotify aims to solidify its reputation as a go-to platform for personalized and high-
quality audio experiences.
Page 10
REFERENCES
Alonso, T. (2023, February 23). How spotify became the standard in convenience and
accessibility. Strategy Study. https://www.cascade.app/studies/how-spotify-became-the-
standard
Bertoni, S. (2021). Beyond the Sound Barrier. Forbes, 204(6), 104-112.
https://login.oclc.fullsail.edu/login?url=https://search-ebscohost-
com.oclc.fullsail.edu/login.aspx?direct=true&db=bth&AN=153914261&site=ehost-
live
Gallant, D. (2022, November 23). Spotify target market segmentation – User Demographics &
Audience Targeting Strategy for 2022. Start.io - A Mobile Marketing and Audience
Platform. https://www.start.io/blog/spotify-target-market-segmentation-user-
demographics-audience-targeting-strategy/
Houghton, B. (2023, February 6). How Spotify got to 205 million paid subscribers: Timeline and
stats. Hypebot. https://www.hypebot.com/hypebot/2023/02/how-spotify-got-to-205-
million-paid-subscribers-timeline-and-stats.html.
Igbasi, W. (2023). The Digital Revolution: How Technology is reshaping the music industry as
we know it. Beat. https://vocal.media/beat/the-digital-revolution-how-technology-is-
reshaping-the-music-industry-as-we-know-it.
Larkin, S. (2023, March 17). Who is Today’s Spotify Consumer? Comscore, Inc.
https://www.comscore.com/Insights/Blog/Who-is-today-s-Spotify-
Consumer#:~:text=Who%20is%20the%20Spotify%20Consumer,visit%20Spotify%20in%
20January%202023
Peoples, G. (2023, February 7). The ledger: Are there really 100,000 new songs uploaded a day?
maybe more. Billboard. https://www.billboard.com/pro/how-much-music-added-spotify-
streaming-services-daily.
Piano. (2022, December 28). Music Streaming Statistics in 2023 (US & Global Data). Musical
Pursuits. https://musicalpursuits.com/music-streaming/.
Santangelo, R. (2023, August 25). Music streaming market share and Revenue Statistics: Details
on the biggest music streaming services. SiriusXM Music for Business.
https://sxmbusiness.com/music-streaming-market-share-and-revenue-statistics/.
Spotify Engineering. (2021, December 7). How Spotify uses ML to create the future of
Personalization. https://engineering.atspotify.com/2021/12/how-spotify-uses-ml-to-create-
the-future-of-personalization/.
Page 11
Spotify. (2023, October 24). Q3 2022 Update .
https://s29.q4cdn.com/175625835/files/doc_financials/2022/q3/Q3-2022-Shareholder-
Deck-FINAL-LOCKED.pdf.
Yahoo! (2023, November 28). Spotify Technology S.A. (spot) income statement. Yahoo! Finance.
https://finance.yahoo.com/quote/SPOT/financials?p=SPOT.
Yonata, J. (2023, November 9). How much does Spotify Pay per stream: Everything you need to
know. Headphonesty. https://www.headphonesty.com/2021/11/how-much-does-spotify-
pay-per-stream/.

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HayleyDerby_Market_Research_Spotify.docx

  • 1. Page 1 A Market Analysis for Spotify USA, INC. Full Sail University Project & Portfolio II: Business and Marketing December 10, 2023
  • 2. Page 2 EXECUTIVE SUMMARY This essay explores strategies for Spotify to expand revenue sources and achieve profitability. Utilizing secondary research, the report analyzes Spotify's market position, financial challenges, and the competitive streaming landscape. Despite commanding a substantial market share with 406 million subscribers, Spotify faces financial intricacies, reflected in a net income of -732,000,000 Euros and a net profit margin of -6%. (Yahoo! Finance, 2023) The company's commitment to personalized content and podcasts distinguishes it in a dynamic industry, particularly appealing to younger demographics. While excelling in content and user experience, Spotify's financial challenges require strategic management. Success hinges on addressing financial complexities, maintaining cultural relevance, and navigating competition in the music streaming landscape. Proposed strategies include content expansion and partnerships, financial optimization, transparent negotiations on artist royalties, integration of music videos, and operational efficiency improvements. These recommendations enhance various aspects of Spotify’s operations, contributing to financial stability and a positive brand image. Strategic moves, such as video integration, reinforce Spotify's leadership in the dynamic music streaming industry.
  • 3. Page 3 OBJECTIVE This report aims to identify and recommend possible strategies for Spotify to expand revenue sources while better managing for operational efficiency to drive a recovery in profits. RESEARCH METHODOLOGY The information used in this report was gathered using external, secondary research from the internet and online databases. Methods include analyses of competitors, news articles, and industry reports. It was collected in December 2023 and is current as of 2023. RESEARCH AND KEY FINDINGS Spotify is a Swedish media services provider that is renowned for its music streaming service that offers a vast library of songs, podcasts, and other audio content. It was founded in April 2006 by Daniel Ek and Martin Lorentzon and launched in the US in July 2011. (Houghton, 2023) The introduction of digital music has also opened up a whole new world of opportunities for musicians. “With platforms such as Spotify, Apple Music, and Amazon Music, musicians are able to distribute their music to a wider audience without the need for a record label. With the rise of music streaming services, people are no longer limited to listening to music on their personal devices.” (Igbasi, 2023) For music enthusiasts seeking an immersive and personalized audio experience. Spotify, the world's leading audio streaming platform, offers an extensive library of music and podcasts, personalized playlists, and exclusive content from artists across genres. Elevate your sonic journey with Spotify, where every subscription delivers an unparalleled blend of discovery, connection, and the promise of a world where music and podcasts amplify moments, creating an extraordinary soundtrack for every listener. The brand prides itself on restoring freedom and universal access to music, creating a platform where users
  • 4. Page 4 can explore their favorite tunes without constraints. (Alonso, 2023) Spotify's commitment to personalized recommendations and continuous content expansion sets it apart in the competitive streaming landscape. In a highly competitive industry, Spotify leads with almost one-third of the global market share. (Santangelo, 2023) As of the Q3 2023 update, Spotify demonstrated robust revenue growth, increasing by 17% year-over-year on a constant currency basis. (Yahoo! Finance 2023) With 406 million subscribers, Spotify commands a dominant market share compared to competitors like Apple Music, Amazon Music, and YouTube Music. (Santangelo; Bertoni, 2023) Despite these strengths, financial challenges persist, evident in a net income of -732,000,000 Euros and a net profit margin of -6%, reflecting the need for strategic financial management. (Yahoo! Finance, 2023) Spotify's library is a testament to its commitment to content excellence, adding between 49,000 and 100,000 new songs daily. (Peoples, 2023) The brand leverages data analytics and machine learning to enhance user experiences, offering personalized recommendations. (Spotify 15% 31% 8% 13% 33% Market Share Apple Music Spotify Youtube Amazon Music Other Services
  • 5. Page 5 Engineering, 2023) The expansion into podcasts and audiobooks further enriches the platform's content variety. The music streaming industry is dynamic, with Spotify at its forefront. “Spotify hasn’t officially revealed its per-stream rate, but our research combining more than a hundred testimonials from different artists found that Spotify is averaging a payout of $0.0032 per stream.” (Yonata, 2023) Spotify remains culturally relevant, particularly among younger demographics. Spotify's target market encompasses a diverse audience, with a strong appeal to younger demographics, including Gen Z and Millennials aged 18-34. Geographically, North America and Europe remain significant markets. (Larkin) In a psychographic sense, Spotify users appreciate the platform's personalized experience and freedom of access to a vast audio library. (Gallant) CONCLUSIONS Spotify, a global frontrunner in the music streaming domain, currently commands a formidable market presence with an impressive 406 million subscribers, underscoring its extensive reach and robust brand loyalty. Despite witnessing commendable recent revenue growth, the company grapples with persistent challenges in achieving profitability, evident in a net income of -732,000,000 Euros and a net profit margin of -6%.
  • 6. Page 6 Operating in a fiercely competitive landscape, Spotify not only contends within the music streaming sector but also grapples with challenges emanating from a plethora of entertainment platforms, navigating issues such as piracy and legal intricacies. Presently, Spotify occupies a pivotal role as the market leader, leveraging its expansive content library and cutting-edge data analytics. The industry's future trajectory suggests a dynamic landscape, and an ability to adapt quickly to changes in new technology and consumer preferences. Strategic endeavors, including exclusive content partnerships and the exploration of music videos, strategically position Spotify for sustained growth. The company's success in projected markets hinges on its ability to address financial challenges, maintain cultural relevance, and navigate intense competition. Spotify's dedication to innovation, user satisfaction, and strategic marketing are crucial factors in preserving its dominant position and capitalizing on emerging opportunities. RECOMMENDATIONS Spotify should leverage the positive reception of its expanding library by intensifying efforts to add high-demand content and establishing exclusive partnerships with popular artist and podcast creators. They should continue to invest in further enhancements to its personalized recommendation algorithms to provide users with even more accurate and enticing content suggestions. Spotify should highlight the platforms unique selling point to attract new subscribers and reinforce brand loyalty.
  • 7. Page 7 (Piano, 2022) Embarking on a comprehensive review of operational costs and revenue streams, the company aims to identify key areas for cost optimization while preserving user satisfaction. To facilitate this endeavor, a cross-functional team has been established, dedicated to devising innovative strategies that enhance profitability. This proactive approach recognizes the importance of adapting to the dynamic market landscape and maintaining financial resilience. However, the company is cognizant of the risks associated with relying on a limited number of revenue sources. In response, it seeks to explore new income avenues, such as exclusive live events, virtual concerts, and merchandise partnerships, as a means of diversifying its financial portfolio and mitigating vulnerabilities. One significant concern revolves around artist royalties, where the company acknowledges the need for transparent negotiations with artists and rights holders. Recognizing the importance of striking a balance that benefits both creators and the company, these negotiations aim not only to address financial considerations but also to foster positive industry relationships. By actively engaging in these initiatives, the company aspires to reshape its financial model, ensuring sustainability and competitiveness in an ever-evolving market. This
  • 8. Page 8 multifaceted approach reflects a commitment to adaptability, financial responsibility, and fostering positive relationships within the industry. In a strategic maneuver, the company is poised to forge partnerships with video platforms, ushering in a new era within the Spotify app that incorporates full-length music videos. This strategic alignment responds to the industry's prevailing trend of heightened video content consumption, positioning Spotify to offer users a comprehensive entertainment experience under a single platform. Introducing full-length music videos and strategically partnering with video platforms is a bold move that provides Spotify with a notable competitive edge. This not only aligns with the evolving preferences of consumers but also positions Spotify at the forefront of innovation within the competitive landscape of music streaming. By offering an all-encompassing entertainment experience, Spotify aims to stay ahead of the curve and solidify its status as an industry leader. Complementing this strategic move is a parallel initiative focused on operational efficiency. The company recognizes the importance of optimizing internal processes and streamlining workflows to fortify its operational backbone. By leveraging technology to enhance backend systems, the objective is to achieve a dual outcome: reducing operational costs and concurrently enhancing overall efficiency. This operational refinement underscores the company's dedication to not only meeting the demands of a dynamic industry but also ensuring a sustainable and agile operational infrastructure to navigate the complexities of the digital landscape. As Spotify embarks on these strategic initiatives, it is imperative to acknowledge unknowns and plan for future research to refine and optimize these efforts. Conducting in-depth market research on user preferences regarding video integration within music streaming
  • 9. Page 9 platforms is crucial. This research should aim to uncover potential challenges, user expectations, and the overall impact on user engagement. Understanding how users perceive and interact with video content will be instrumental in tailoring Spotify's approach to meet evolving consumer demands. Soliciting user feedback on operational efficiency measures ensures that streamlining processes does not compromise the user experience. Continuous improvement based on user sentiments and preferences will be critical in maintaining a harmonious relationship between efficiency gains and user satisfaction. This iterative feedback loop will help Spotify fine-tune its operational strategies for long-term success. Undertaking both cost-containment and revenue enhancement, Spotify executives should set a SMART goal of moving its net profit margin into positive territory of +3% in the next fiscal year. The proposed recommendations offer a myriad of advantages for Spotify, enhancing various facets of its operations and positioning in the market. The strategic content expansions and partnerships, coupled with enhanced personalization features, are poised to contribute significantly to fostering a positive brand image. These initiatives not only attract more users but also play a crucial role in retaining existing ones. By offering a diverse and engaging content library, Spotify aims to solidify its reputation as a go-to platform for personalized and high- quality audio experiences.
  • 10. Page 10 REFERENCES Alonso, T. (2023, February 23). How spotify became the standard in convenience and accessibility. Strategy Study. https://www.cascade.app/studies/how-spotify-became-the- standard Bertoni, S. (2021). Beyond the Sound Barrier. Forbes, 204(6), 104-112. https://login.oclc.fullsail.edu/login?url=https://search-ebscohost- com.oclc.fullsail.edu/login.aspx?direct=true&db=bth&AN=153914261&site=ehost- live Gallant, D. (2022, November 23). Spotify target market segmentation – User Demographics & Audience Targeting Strategy for 2022. Start.io - A Mobile Marketing and Audience Platform. https://www.start.io/blog/spotify-target-market-segmentation-user- demographics-audience-targeting-strategy/ Houghton, B. (2023, February 6). How Spotify got to 205 million paid subscribers: Timeline and stats. Hypebot. https://www.hypebot.com/hypebot/2023/02/how-spotify-got-to-205- million-paid-subscribers-timeline-and-stats.html. Igbasi, W. (2023). The Digital Revolution: How Technology is reshaping the music industry as we know it. Beat. https://vocal.media/beat/the-digital-revolution-how-technology-is- reshaping-the-music-industry-as-we-know-it. Larkin, S. (2023, March 17). Who is Today’s Spotify Consumer? Comscore, Inc. https://www.comscore.com/Insights/Blog/Who-is-today-s-Spotify- Consumer#:~:text=Who%20is%20the%20Spotify%20Consumer,visit%20Spotify%20in% 20January%202023 Peoples, G. (2023, February 7). The ledger: Are there really 100,000 new songs uploaded a day? maybe more. Billboard. https://www.billboard.com/pro/how-much-music-added-spotify- streaming-services-daily. Piano. (2022, December 28). Music Streaming Statistics in 2023 (US & Global Data). Musical Pursuits. https://musicalpursuits.com/music-streaming/. Santangelo, R. (2023, August 25). Music streaming market share and Revenue Statistics: Details on the biggest music streaming services. SiriusXM Music for Business. https://sxmbusiness.com/music-streaming-market-share-and-revenue-statistics/. Spotify Engineering. (2021, December 7). How Spotify uses ML to create the future of Personalization. https://engineering.atspotify.com/2021/12/how-spotify-uses-ml-to-create- the-future-of-personalization/.
  • 11. Page 11 Spotify. (2023, October 24). Q3 2022 Update . https://s29.q4cdn.com/175625835/files/doc_financials/2022/q3/Q3-2022-Shareholder- Deck-FINAL-LOCKED.pdf. Yahoo! (2023, November 28). Spotify Technology S.A. (spot) income statement. Yahoo! Finance. https://finance.yahoo.com/quote/SPOT/financials?p=SPOT. Yonata, J. (2023, November 9). How much does Spotify Pay per stream: Everything you need to know. Headphonesty. https://www.headphonesty.com/2021/11/how-much-does-spotify- pay-per-stream/.