Decision Making Analysis Report: Spotify Technologies

This report provides an in-depth analysis of the decision-making processes within Spotify Technologies, focusing on a major issue: the increasing costs associated with artist royalties. The report begins with an overview of Spotify's business, detailing its media streaming platform and its reliance on content providers, including artists and media companies. It examines the business processes, highlighting the complexities of negotiating royalty agreements and managing operating costs. The core of the analysis centers on the challenges posed by rising royalty demands from artists and their impact on Spotify's profitability. The report explores potential solutions, including strategic revisions to royalty agreements and a focus on attracting high-quality content. It concludes with an analysis of the stock market's reaction to Spotify's financial performance and offers recommendations for improving decision-making to ensure sustainable growth and profitability in the competitive media streaming market. The report provides a comprehensive understanding of the factors influencing Spotify's strategic decisions and their implications.

Running head: DECISION MAKING
Decision Making
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary:
This report is prepared to understand the process of decision making and to find the issues
related with the decision making process. Decision making is the process of making a choice
from the alternative options available. It is the conscious the process of selection of one
option from various available alternative options. This is very important because the success
of any initiative depends on the right choice of option or the right decisions. In this report the
business process of the Spotify Technology have been analysed to find out some of such
decision making complexities and recommendations have been made to make a solution to
those issues with a conscious decision.

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Table of Contents
Introduction:...............................................................................................................................3
Brief Overview of the Company:...............................................................................................3
Business Process Analysis:........................................................................................................4
Issues Faced by the Spotify Technologies:................................................................................6
Solution and Decision Strategies:..............................................................................................7
Stock Market Analysis:..............................................................................................................7
Conclusion:................................................................................................................................8
References and bibliography:.....................................................................................................9

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Introduction:
Business organisations are established with an objective of earning revenue and
making profit out of their operating activities. They have a predefined goals and objectives
which defines their mission and vision statement. To achieve those mission and vision they
do all those investing and operating activities which lead them towards achievement of their
mission and vision. In doing so, they have to make a decision in selecting a particular option
in various situations such as determining the internal business process, selection of the
investment option and various managerial issues (García-Peñalvo and Conde 2014). The
process of selecting one alternative from the available various alternatives is known as the
decision making. In this report the issues related with the Artists’ Royalty of Spotify and
increase in operating costs have been discussed and a recommendation have been made for a
better decision making to solve out those issues (Ingham 2019).
Brief Overview of the Company:
The Spotify Technologies S.A. was established in the year 2006 as a media service
provider in Sweden. The basic operating activity of the company is to provide its audio
streaming platform which is the main revenue generating activity for the company. They also
provide the DRM protected music and podcasts from various other record labels and media
companies (Spotify.com 2019). They have been operating their activities successfully since
its establishment and grown up their business with the conscious decision about their
business process and the efficient management strategies. In recent years some issues in their
operating activities and decision making complexities can be observed which have been
discussed in the following paragraphs of this report (Spotify.com 2019).

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Business Process Analysis:
Sotify Technologies S.A is a Swedish media service provider and they have been
providing media contents mainly the music over their audio streaming platform. They also
provide various other media contents such as DRM protected music and other music from
various other media labels and music companies (Ingham 2019). Therefore, the Spotify is
nothing but an internet based media platform where the media contents are made available at
a subscription. They host the audio streaming and charge for that and they also charge for
advertising. They take copyrighted media contents from the other companies and make it
available to the people and give an access to it for certain amount of subscription. Therefore,
their business process depends on the artists, media companies and other music companies.
They need to negotiate with those companies in time to time to make various decisions
regarding their business operations (Spotify.com 2019).
As the business activities of the Spotify Technologies depends on those parties such
as Artists, Media Companies and Media brands, they have to negotiate the price for the
media contents and music and all those constitutes their operating costs. They have to
determine the subscriptions for the audience based on those operating costs. Therefore, it is
important to manage the overall operating costs of the business to make a profit from their
operating activities (Ferrell and Fraedrich 2015). They have some artists who are working
with the Spotify Technologies to create music and media contents which they sell through
their media streaming platform. The Spotify Technologies is having a contract with those
artists and pays them the royalty from the earnings generated by selling the music or the
media content provided by a particular artist. Therefore the royalties paid to the artists for the
music and media content provided by them is also a part of their operating costs (Ingham
2019).

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On the other hand, the main investment areas for the company are to host the website
and the maintenance of the audio streaming platform. They need to invest in the server they
are using and pay to the host or the provider of the server. They are having a fixed contract
with the host or the provider of the server and pay an annual maintenance costs which can be
considered as an operating expenses for the Spotify Technologies. To maintain all those
activities they need to have a well established and efficient group of manpower. They are
having various sound engineers and media content developers who are working with them to
create and develop such music and media contents. Salaries and remunerations paid to those
employees make a huge addition to their total operating costs (Spotify.com 2019).
Initially the market for these type of media service provider was less competitive and
a very few such companies were there who were providing media contents and music through
the internet. Later on with the introduction of new companies in the industry the market has
become more competitive (Pettigrew 2014). As those media platforms are accessible from all
over the globe their audiences are scattered around the globe and most of the companies
provide such media contents and music which can have a wider market or which can be
purchased by the people from all over the globe. Therefore, this market is an international
market having a wide scope and participants from all over the globe (Ghattas, Soffer and
Peleg 2014). There are various renowned companies in this industry, they are also providing
media contents, music through their web based platform with a high quality, and a strategic
subscription plans. Spotify Technologies S.A need consider those market situations and
competitions in the market to determine the rate of their subscription and to make a challenge
to their competitors. In this market the switching cost to the customers are zero hence, they
can easily switch to the other companies and brands if they can offer more qualitative media
contents in a cheap price of favourable subscription plans. Therefore, in this aspect also the
Spotify Technologies need to make certain conscious decisions (Spotify.com 2019).

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Issues Faced by the Spotify Technologies:
The tagline for the company is “Simplify and Streamline Music Rights and Royalties”
which aims ant simplifying the Music royalty agreements with the artists and the brands and
labels that are developing and creating the media contents and music. As they are just a host
company and streams the audios of artists and other brands, they need to pay royalties to the
artists and to the labels or brands from whom they are taking the music and media content. It
can be observed from the 2018 annual report that they have ended up their business for the
2018 fiscal year with a significant amount of profit but the increase in operating costs mainly
the royalties paid to the artists have created a serious issue to them redefine their strategies
(Spotify.com 2019).
As there is a global market and global reach of those companies the demand for the
music and quality media contents are increasing. The music is solely a matter of comfort, test
and preference of individuals. Therefore, it must be qualitative enough to be attractive which
requires the artists to be efficient in his art and in his work. Having this high demand for
those artists, they are unwilling to fix their remuneration or the royalty structure at a lower
amount. They are demanding a hike in their royalty structures day by day. The royalties paid
to the artists and brands are the main component of the operating costs of Spotify
Technologies (Thompson, Strickland and Gamble 2015). Therefore, in turn the total
operating costs of the company will be increasing which will lead them to make the
subscription plans more costly. This can be identified as the main issue to them for now and a
conscious decision is needed either to revise their subscription plans or to make changes to
their royalty structures (Khanagha Volberda and Oshri 2014). To make a solution to this issue
and to have a profitable and feasible way some strategies have been suggested in the
following paragraphs of this report for the Spotify Technologies.

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Solution and Decision Strategies:
The increases in royalties causing an increase in the total operating cost to the Spotify
Technologies have become the main issue to continue their business profitably. They are
having two ways, either to pay more royalties to the artists and brands or to revise their
subscription plans to charge more from their customers (Sutherland and Holstead 2014). If
the subscription plans are revised and more amounts is charged from their customers, there is
a potential that the customers will be switching to the other brands as the switching cost is
zero to them. Therefore, to make the business profitable the company needs to be more
efficient and manage their business more efficiently and effectively (Fleisher and Bensoussan
2015). It can be observed from common trends in the market that not all of the music and
media contents become popular. The most qualitative one and the most attractive one become
popular and attract attention of the audience all over the globe. Hence, it can be suggested
that the Spotify Technologies should go for those most qualitative and attractive music and
media contents by continuing the agreements with the most efficient artists and media brands.
It can be observed from their recent operational activities that they have taken that decision
and revised their artist and brand portfolio and they are serving with a very good quality
music and media contents in recent years (Bajomi-Lázár 2014).
Stock Market Analysis:
Currently the shares of the Spotify Technologies S.A. are trading at price of $153.47
despite having a significant amount of profit in the last fiscal year (Finance.yahoo.com 2019).
It can be observed from their financial performance over the last couple of years that they
have been making a huge amount of loss for a number of years. And in the recent they have
managed to reduce the amount of loss to certain extent. The loss can be because of the
increased operating costs due to increase in the royalties. With the loss the stock market

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reacted negatively and the share price fall significantly in those years but having a hope of its
regain in the market and being a good brand in the industry shareholders still held its shares a
current stock market scenario of the Spotify Technologies S.A can be shown in the following
picture.
(Source: Finance.yahoo.com 2019)
Conclusion:
Based on the above discussion and analysis, it can be concluded that, business
organisations need to make certain conscious decisions to make their business profitable.
Sometimes, the decision areas become so complex that a proper analysis of the issues and
consideration of all the material aspect is important to find a way out from the situation. In
this report it have been identified that the increasing royalty or operating costs were the main
issue for the Spotify Technologies to run their business profitably and it can be recommended
that revising the royalty agreements and continuing with only the efficient artists and brands
can give them a better solution to the identified problem. Lastly, it can be commented that
those important decision must be taken after considering all those aspects which gets
impacted by such decisions.

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References and bibliography:
Bajomi-Lázár, P., 2014. Party Colonisation of the Media in Central and Eastern Europe:
Modern Business Decision Making in Central and Eastern Europe. Central European
University Press.
Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases.
Nelson Education.
Finance.yahoo.com. (2019). Yahoo is now part of Oath. [online] Available at:
https://finance.yahoo.com/quote/SPOT?p=SPOT [Accessed 5 Aug. 2019].
Fleisher, C.S. and Bensoussan, B.E., 2015. Business and competitive analysis: effective
application of new and classic methods. FT Press.
García-Peñalvo, F.J. and Conde, M.Á., 2014. Using informal learning for business decision
making and knowledge management. Journal of Business Research, 67(5), pp.686-691.
Ghattas, J., Soffer, P. and Peleg, M., 2014. Improving business process decision making
based on past experience. Decision Support Systems, 59, pp.93-107.
Ingham, T. (2019). 5 of Spotify's biggest imminent challenges in 2019 - Music Business
Worldwide. [online] Music Business Worldwide. Available at:
https://www.musicbusinessworldwide.com/5-of-spotifys-biggest-imminent-challenges-in-
2019/ [Accessed 5 Aug. 2019].
Khanagha, S., Volberda, H. and Oshri, I., 2014. Business model renewal and ambidexterity:
structural alteration and strategy formation process during transition to a C loud business
model. R&D Management, 44(3), pp.322-340.

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Pettigrew, A.M., 2014. The politics of organizational decision-making. Routledge.
Popescu, F. and Scarlat, C., 2015. LIMITS OF SWOT ANALYSIS AND THEIR IMPACT
ON DECISIONS IN EARLY WARNING SYSTEMS. SEA: Practical Application of
Science, 3(1).
Spieth, P., Schneckenberg, D. and Matzler, K., 2016. Exploring the linkage between business
model (&) innovation and the strategy of the firm. R&D Management, 46(3), pp.403-413.
Spotify.com. (2019). Music for everyone.. [online] Available at:
https://www.spotify.com/in/about-us/contact/ [Accessed 5 Aug. 2019].
Sutherland, L.A. and Holstead, K.L., 2014. Future-proofing the farm: on-farm wind turbine
development in farm business decision-making. Land use policy, 36, pp.102-112.
Thompson, A., Strickland, A.J. and Gamble, J., 2015. Crafting and executing strategy:
Concepts and readings. McGraw-Hill Education.
Zsambok, C.E. and Klein, G. eds., 2014. Naturalistic decision making. Psychology Press.