Analysis of Spotify's Positioning in Music Industry

The assignment discusses the record music industry and its current state, analyzing it through Porter's five forces model. It then focuses on Spotify's positioning in the market, using the same framework to evaluate its competition, threat of new entrants, threat of substitution, bargaining power of suppliers, and bargaining power of buyers. The analysis provides insights into Spotify's strengths and weaknesses, as well as potential areas for improvement.

Business Strategy

Table of Contents
Business aspects of Record Music Industry....................................................................................1
Positioning of Spotify in music industry.........................................................................................2
REFERENCES................................................................................................................................4

Business aspects of Record Music Industry
Emergence of live streaming of music has affected the record music industry where it has
been seen that revenue is constantly reducing since 2006. The advent presence of digital
distribution of music have strongly affected the market of recorded music. Artists come under a
contract under a certain label to get their albums released (Klettner, Clarke and Boersma, 2014).
When a record company sign an artist, it is usually done on contractual basis for certain number
of years. The company then pay a specific amount in lieu of the same. The music is
manufactured, distributed and promoted under the same label. In return of the efforts made by
the artist, he / she is able to get certain percentage of the sales in the form of royalty ( Buckley,
Burton and Mirza, 2016). To analyse the record music industry, Porter’s five forces model can be
applied in the following manner: Bargaining power of buyers: Presence of market giant companies who have created
monopoly in the market makes it difficult to offer similar prices for Spotify. In that case,
company has to offer slightly lower prices to capture the market. Hence, in this case, the
chances and risk of bargaining power of buyers is higher. Bargaining power of suppliers: There is a presence of various suppliers in the market in the
form of music directors, artists, CD and cassette suppliers etc. Hence, the risk of bargaining
power of suppliers is low in case of music record industry. Threat of new entrants: Entry of new players in the market is limited hence, less companies
tend to enter in this market. In this scenario the threat of new entry for Spotify is low. Threat of substitute: there are various market giants present in the market which makes it
difficult for Spotify to survive in the market. Hence, threat of substitution is higher.
 Industry Rivalry: There are various competitors that are available in record music industry
which makes it difficult for Spotify to maintain its brand image and enhance its sales.
Moreover, the product differentiation in music industry is also low. Hence, adequate amount
of differentiation can help in receiving competitive advantage in the market.
However, the record industry has now been taken over by digital downloads of music. Other
common methods used by people in this area include, streaming where people can listen to the
tracks before taking ownership of the audio files (Johnson, 2016). Other video sites such as,
YouTube and Vevo have also become music video giants in the music industry.
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Furthermore, record industry has certain companies who have been dominating this arena
since years. These are, Sony Music Entertainment, Warner Music Group and Universal Music
group. It is difficult to survive and make revenue in the market which has already been captured
by certain companies (15 things you MUST do to make it in the music industry, 2016). Further, a
certain shift of preferences of the consumers has also reduced the revenue since few years which
is constantly on declining state. Getting involved in record music industry will not be able to
generate adequate amount of profits to the entrepreneurs.
Hence, in the end, it can be concluded though the analysis that record music do not look like
a good business to be in.
Positioning of Spotify in music industry
Spotify is a record music producing company established in 2006. It was able to get wold’s
biggest music rights inclusive of three major labels of the country (E. Dobbs, 2014). The
organization has been able to tap and attract large number of customers towards it in the form of
12.5 million paying subscribers 50 million active users taking services of Spotify in 58 countries.
The three major record labels with which the company worked are, Warner, Universal and Sony.
Analysing Spotify on the basis of Porter’s positioned model, following outcomes can be
formulated: Competition: Spotify have been able to position itself in the market in a strong manner.
However, there are certain competitors that are available in the market are the most
prominent companies of the world (Mathooko and Ogutu, 2015). A high investment in the
marketing campaign of these companies affect the overall stability of Spotify in the market.
These include, apple music, google play music etc. Exponential growth in music industry
have been able to give the highest music subscribers to Spotify. Hence, it can be stated that,
at present. There is a limited impact of competitors of the functioning of Spotify. Threat of new entrants: There is high barrier on entering the periphery of on demand music
streaming. Hence there are limited companies who are able to offer these services to the
customers. Hence, the possible entrants to this industry are limited to certain large
corporations and high-tech companies. Threat of substitution: there are various methods through which music streaming industry
have been replaced for certain alternative methods. One of the major competitors that is
currently available in the market is YouTube which is currently servicing approximately 900
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million users. Hence, it can be ascertained that YouTube has hit the positioning of Spotify
quite hard (Indiatsy and George, 2014). Bargaining power of suppliers: the main suppliers of Spotify are the labels and artists. The
labels and company tend to work upon a mutually benefitting agreements which may not
negatively affect the positioning of Spotify. Hence, a favourable position of Spotify can be
indicated through this factor of porter’s model. Bargaining power of buyers: The customer in this type of industry are not loyal and can
easily switch to the services of some other company if they do not feel satisfied with the
previous one (Yunna and Yisheng, 2014). In this manner, various tech companies such as
apple and google are being able to gain large number of users and subscribers. Hence, it can
have significant impact of the positioning of Spotify.
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REFERENCES
Books and Journals
Buckley, P. J., Burton, F. and Mirza, H. eds., 2016. The strategy and organization of
international business. Springer.
E. Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review. 24(1). pp.32-45.
Indiatsy, C. M. and George, G. E., 2014. The Application of Porter’s Five Forces Model on
Organization Performance: A Case of Cooperative Bank of Kenya Ltd. European Journal
of Business and Management. 6(16). pp.75-85.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible
business strategy. Journal of Business Ethics. 122(1). pp.145-165.
Mathooko, F. M. and Ogutu, M., 2015. Porter’s five competitive forces framework and other
factors that influence the choice of response strategies adopted by public universities in
Kenya. International Journal of Educational Management. 29(3). pp.334-354.
Yunna, W. and Yisheng, Y., 2014. The competition situation analysis of shale gas industry in
China: Applying Porter’s five forces and scenario model. Renewable and Sustainable
Energy Reviews. 40. pp.798-805.
Online
15 things you MUST do to make it in the music industry. 2016. [Online]. Available through
<http://diymusician.cdbaby.com/musician-tips/15-things-must-make-music-industry/>.
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