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Whittier Scholars Program Student Scholarship & Research

Fall 12-7-2022

Spotify Streaming's Noteworthy Effects on Japan

Megan Atwell
Whittier College, matwell@poets.whittier.edu

Follow this and additional works at: https://poetcommons.whittier.edu/scholars

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Atwell, M. (2022). Spotify Streaming's Noteworthy Effects on Japan. Retrieved from
https://poetcommons.whittier.edu/scholars/4

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 Spotify Streamings Noteworthy Effects in Japan

By: Megan Atwell

Japan’s Original Market

Japan is the “world’s second-biggest music market”(Reuter, 2020) right after the USA.

Japan has been able to maintain this status through their usage of different promotional strategies

as well as their culture of having fan clubs and idols. Promotional strategies such as CD bundles,

invitations to VIP events, or access to early concert tickets with the purchase of CDs are very

common and encourage physical sales revenue over time. Buying CDs also allows fans to

directly support their favorite artists rather than using a streaming service in which their money

would be spread out across many different artists. Due to Japan having an extremely competitive

culture surrounding fans, most fans would prefer to spend money solely on their preferred band

to showcase how much they value them.

On top of already having individual fans there are also websites that create a supportive

environment to find others who have the same interests in a fan club approach. The websites also

include exclusive content that can be accessed through subscriptions. Then there’s the idol

system where there is constantly new talent as well as public appearances of idols being solely

controlled by the company who has them as an employee. Companies use idols and the highly

valued culture of collectibles to their advantage with sales. For example, AKB48 allows fans to

choose who will “be in the frontline of the band” in which “the right to vote is tied to the serial

number of the group's latest "election single", creating an incentive [where] some fans buy

hundreds or even thousands of AKB48's CDs at a time”(Ucaya). This is in response to having

over 100 idols they use this system to decide who will be featured on the CDs while also using

collectible culture to gain more revenue. Typically someone in the western world would only buy
a CD once if they were still prevalent in the western world. However, in Japan having multiple

collectibles is utilized to display how much a fan appreciates their favorite artist. These contests

themselves can majorly impact the rate of physical sales. Therefore, promotional strategies as

well as fan culture explains how Japan has remained the top 2nd ranking music industry in the

world despite generally staying domestic.

CD’s made up about “70% of recorded music sales” in 2019(Reuter, 2020). Japan is one

of the only countries that has remained so loyal to CDs despite streaming music already

becoming popular globally. In the chart below the extent of how prevalent physical sales are in

comparison to other sources of revenue is apparent.

However, “in 2016, … 42,7% of respondents employed YouTube as the primary source

for music discovery and consumption” (Ucaya). With this information there’s proof that Spotify

as well as other streaming services can be extremely successful in coming into Japan despite

their odds of the market being extremely different. With streaming becoming more favorable and
accessible the total physical sales will start being replaced and therefore may lower Japan’s

overall global ranking in the music industry. Streaming becoming popular may also lead to more

consumption of other countries’ music leading sales to go international and be removed from

their previous domestic reign. Although, in “February 2019, only 3 songs out of the top-10 of

Billboard Japan Hot 100 were actually available on Spotify”(Ucaya) which gives less appeal for

switching over to Spotify.

On top of having barely any of Japan’s top hits on Spotify there are also many different

music groups that have already been stationed in the country for years. Some of the bigger record

labels in Japan include Avex Entertainment Group, Universal Music, Sony Music Group, and

JVC Kenwood Victor Entertainment Group. All of these record labels tend to use Tower

Records, a retail store chain, as their main distribution channel. Avex is currently undergoing

hardships with “seeing its market share halve in just five years”(Complete Music Update). Avex

was already trying to remain at the top by switching to a focus on live music events while their

revenue was going down from customers who have been changing to streaming services.

However, once Covid hit there was an even bigger problem with sales now that even what they

turned to for safety ended up being halted due to the pandemic. Nevertheless, this would only

benefit Spotify in the sense that their competitors are being shot down due to the coronavirus

while they are able to generate more consumers from being a purely online service that requires

minimal effort.

Contrarily, Universal Music Group is gaining speed after forming a partnership with

Spotify. Universal Music Group has many tricks up their sleeve including being adaptable to the

changing industry and joining Spotify as well as having key artists that are continuously proving
how valuable they are to the current market. Universal Music Group gains a higher availability

of streaming rights from Spotify while Spotify gains advice on new technology from UMG.

Spotify’s Background

Spotify was founded in 2006 by Daniel Ek and Martin Lorenzton in Sweden as a solution

for the ever growing piracy issue (BBC, 2018). Daniel Ek is the current CEO and leader of the

expansion into the Japanese music industry. Streaming has indeed helped with lowering the

impact of piracy in the music realm. With DSPs, otherwise known as digital service providers,

such as Spotify, revenues have begun to rise with less earnings going down the drain in terms of

piracy. Just this year “[s]treaming made up 62.1% of the global record business in 2020 [o]f the

$26.1 billion generated“ (Forde, 2022). Streaming services have clearly been able to truly create

a lasting impact on the current world that is looked at as advantageous when it comes to

depleting the piracy problem.

A key factor of Spotify's ability to gain traction in the industry is their “freemium” model

in which the company includes two options:

1) Ad-supported listening for the consumers who wish to not pay for the subscription or are

looking to try the app out.

2) A recurring payment fee in order to enjoy the music streaming and podcasts without

advertisements or the subscription based interaction.

However, this freemium model has received backlash in the past from various celebrities

including Taylor Swift who stated that she was “not willing to contribute…to an experiment that

[she does not] feel fairly compensates the writers, producers, artists, and creators"(BBC, 2018).

Swift is referring to the fact that DSPs have created a surge of complications in regards to

distributing publishing royalties. This will also be found to be a problem in trying to integrate
Spotify into Japanese music culture. Despite the freemium model originally being a key factor in

differentiating from the corporation's rivals.

Spotify’s Entry

Spotify entered the Japanese market in September, 2016. Spotify is the first streaming

service in Japan that offers a freemium model for its user base. This can help Spotify gain

traction amongst the new market for those who want to test out this new streaming music service

that they have not had in the past without having to pay for it like they would with Spotify's

competitors. Some of their rivals offer a month free such as Apple Music however, Spotify stays

with a competitive edge by being the only one that allows totally free as long as the user is

compliant with viewing ads.

Spotify’s Marketing Approach

Partnership Usage

Partnership usage was a heavy component in aiding Spotify’s entry. This allows for

Spotify to already be able to gain access to information within the country by collaborating with

locals in exchange for mutual negotiable benefits. With this information, the corporation will

have more power to them in being able to understand how to effectively blend into the culture.

Dentsu is a particular agency that Spotify decided to “forg[e] a capital and operational tie-up

with”(Writer, 2016). Dentsu is a critical component to aiding Spotify in the fact that Dentsu is

the largest advertising agency in Japan. Dentsu allows the corporation to enter the market

smoothly due to already having a huge influence in Japan.

In addition to Dentsu, Spotify “has struck deals with Avex Group Holdings, Universal

Music Japan and other big Japanese record labels”(Writer, 2016). This allows for Spotify to also

gain more artists on their platform due to having these partnerships and makes business easier for
negotiations with other record labels. On top of partnership deals, Spotify also used “hir[ing]

former insiders of local labels… [b]ut some labels and others in the music business pushed back

against its freemium streaming service”(Writer, 2016). Spotify uses insider information to be

able to have the easiest grounding for entering the country and being able to have enough

knowledge to effectively enter the market. However, even with information Spotify must have

good businessmen to be able to properly persuade Japanese consumers of why their freemium

service is more beneficial than the CD and pop up environment that has been in place for years.

Podcast Differentiation

One of Spotify’s biggest barriers in regards to their entry was having enough Japanese

content on their service. A wide majority of all Japanese media and songs were not accessible on

the application which created a rift in promoting to the Japanese. The proposal for entering the

country by Daniel Ek was to be able to interchange music from other countries with Japan while

also returning the favor by spreading the availability of Japanese music to said countries. This

would lead to a music exchange that was to benefit everyone involved.

Spotify decided that they would focus on podcast collaborations as a way to gain

consumer loyalty by bringing beloved Japanese celebrities onto the app. Spotify has partnered up

with Kemio, Yoshimoto, and TV Tokyo with dramas, comedy shows, and podcasts to be able to

gain momentum with Japanese listeners (Bezemer, 2022).

Freemium Model

The main universal model Spotify is using is the freemium model. In 2016 Spotify

decided to “offer its free version and a premium option costing 980 yen ($9.57) per

month”(Writer, 2016). This would set Spotify apart from the rest of their competition by being

the only service in Japan that allowed for free streaming. Along with having a freemium strategy
Spotify focused on marketing specifically on social media such as LINE which is the most

popular messaging platform in Japan.

Competitive Advantage in Porter’s Generic Strategies

Spotify has a broad differentiation competitive advantage in terms of adding podcasts and

those who are famous in Japan to be specifically featured or having their own podcasts to cause

attention towards the app. Along with this Spotify also has many different features and a wide

variety of music available for a wider target audience.

Vertical differentiation is the focus on differentiating the quality of the products or

services provided compared to horizontal differentiation which is expanding preferences. Spotify

focuses on vertical differentiation in which they focus on changing the quality of the app by

adding the features included to make the application more appealing. For example, new features

added such as Spotify Wrapped or podcasts as mentioned previously. Spotify Wrapped is a

feature that started in 2016 that led to more widespread exposure of the app. Due to the share

feature, Spotify Wrapped became a trend in order to show off what music one listened to as well

as the total minutes spent listening during the year. Both of these features give more value for

customers in deciding to purchase a Spotify subscription rather than another digital service

provider. Another added feature specific to Spotify’s family plan is that there is the ability to

block explicit music which is helpful for parents to not have their kids end up on a side that

could be negative due to vulgar language.

Japan’s Industry

Porter’s 5 Forces

1. Competition in the industry is crucial for Spotify to acknowledge in order to be able to

survive the Japanese music industry. Luckily for Spotify, most of the Japanese music
 market did not have a focus on music streaming. This allows for Spotify to have an

advantage over their primary competitors by being able to offer a substitute service

compared to the huge CD market that was there beforehand. However, due to the CD and

pop up market being so popular Spotify would have to be able to prove why their method

is more satisfactory for customers in a world where the Japanese market has been

constantly incentivizing their CD sales with special offers.

Now the main competitors include the following: Amazon Prime Music, Apple

Music, and LINE Music. Amazon Prime was actually labeled ahead of Spotify in terms

of being the leading streaming service in the country in 2020 based on an online

survey(Statista, 2022). LINE Music, developed by the company with the most popular

messaging system in Japan, was quick to follow the trend of music streaming by coming

into the industry only a few years after Spotify and a few other companies entered the

market. Spotify, Line Music, and Amazon Prime Music all entered the market within a

year of each other while Apple music had already had iTunes involved for over a decade.

Therefore, Spotify entered the market around the same time as their major competitors.

This did not give Spotify a competitive edge but still allowed for the market to be super

new to music streaming platforms which allows for more innovation while at the same

time the need for room for marketing mistakes.

2. In terms of the potential of new entrants into the industry the digital service provider

industry has strong barriers to entry. This is primarily due to the amount of technical

prowess as well as licensing that is involved in order to be successful which does not

even involve how much marketing the platform would need additionally. “Creating a
 successful streaming service… involves extensive programming, a robust physical

infrastructure, intricate licensing arrangements, and marketing skills''(Blakeley). In

regards to extensive programming a new and upcoming business would need to be able to

develop an all new program as well as creating an algorithm to recommend music that the

user would like in order to keep up with their competitors. Following this, with a focus on

licensing this can be exponentially expensive the more artists that are offered on the

platform along with the process of finding the rights holders for the content. All of these

expenses are before even being able to work on innovation to differentiate from

competitors and putting in effort on focusing on how to properly market towards the

market audience they decide on.

3. Power of suppliers is the main portion that focuses on how costly the operations will be.

The main focus of suppliers in the digital service provider world are the providers and

artist distributors. Artist distributors are a huge help to the music streaming market in

which they handle bands and artists licensing as well as royalties. Not to mention the

process of finding a supply of artists that are willing and desire being on the platform.

There is a surplus of artist distributors in the industry which allows costs to be lower for

music streaming providers.

4. For the total power that customers have; Spotify customers do not have very high

bargaining power due to there being a vast amount of consumers and the market being

very diverse. Despite there being the target market of the millennial and generation Z

generations there is less power due to the aspect that a vast majority of everyday people

listen to music. Spotify does have a plan catered to students however, other than that
 there is no real customer bargaining power. Due to having so many music and podcast

options the listeners are very diverse.

5. Threat of substitute products: some of the main substitutes include Youtube, television,

and CDs. Youtube is the most popular in terms of listening to music in Japan(Statista,

2022). In terms of their free services Youtube is most beneficial for listening to any song

one desires at any time however, there is the downside of having to keep the phone open

in order to be able to use the application. Along with this Youtube allows for ads to be

skipped while Spotify does not which makes Youtube appear more attractive. Another

point is that despite Youtube having the option for consumers to watch music videos

Youtube does not have the vast amount of podcasts available as Spotify.

PESTEL Analysis

One of the main ways to determine how Spotify will fare in the country is through

PESTEL analysis. With this there is a focus on the industry on the following aspects: political,

economical, social, technological, environmental, and legal factors. These are all deciding factors

on how an industry is operating and how important these are in regards to a business looking to

enter into the environment. Through this analysis there will be a focus on how these factors can

affect Spotify and if 2016 was a favorable time to enter this business climate.

Political Factors

Broadly speaking, political factors are those driven by government actions and policies.

They include, but are not limited to, considerations like: corporate taxation, other fiscal policy

initiatives, free trade disputes, and antitrust and other anti-competition issues

In terms of corruption Japan is vastly more transparent than most countries. With a

ranking of 20th out of 176 other countries(The Global Economy) with the 1st country being the
least corrupt it is evident that Japan is a trustworthy country to engage in business in. This is

beneficial for Spotify because they do not have to worry about partnering with an individual or

group that is likely to be involved in breaking anti-corruption regulations.

There is also an incentive for Spotify to invest in themselves due to the “innovation tax

relief program where… larger companies that invest more than 100 million yen or more… are

allowed to deduct the 25% value of their investments from their taxable income” (Crowjack).

With this tax deduction less of Spotify’s overall income will be taxable which will allow them to

spend more money on investments or to save for future projects. This newfound money can also

be used to help incentivize new workers by being able to raise wages as well as improve

infrastructure in the offices. With investments on innovation there can also be aid in making

equipment and the Spotify interfacing more user friendly and easier to fix if the site or app ever

comes across issues.

There have only been 3 different prime ministers since 2012. The majority of this time

has been with prime minister Shinzo Abe who primarily focused on his own Abenomics in order

to have Japan finally be from stagnation or the lack of economic growth and development. Shizo

Abe was part of the liberal democratic party and has held the longest tenure in Japanese history

as a prime minister with his time span of 2012-2020. Since 1987 there have only been prime

ministers with generally smaller time periods in office that typically were held for less than a

year to 2 years. Therefore, Abe was able to have the most stable time limits due to constantly

being elected and genuinely having time in office to be able implement lots of policies. Spotify

coming in a time where the prime minister position is stable was a sharp move for them to have

made. Stability is critical for incoming businesses because then there is no real reason to have

lots of back up plans in case a policy is changed sporadically.

 Economic Factors

In addition to Shinzo Abe being politically stable for the economy due to holding office

for a multitude of years. There was also the main policy of Abenomics. Abenomics is a focus on

“slashing business regulations, liberalizing labor market, cutting corporate taxes”(Council on

Foreign Relations) as well as prioritizing low interest rates, cutting back on red tape, and

promoting participation from more women, seniors and immigrants(Power, 2022). For Spotify

this is all of great assistance when there’s the consideration of how the government and economy

will have a focus on more of a laissez faire mentality. A laissez faire mentality allows businesses

to be capable of making more intricate decisions due to not needing to make sure every policy

they create or idea they have follows a ton of regulation requirements. In addition to this,

decisions can go through faster with less red tape causing processes to take longer to get

approved. With lots of red tape processes can be very time consuming to go through and instead

disincentive the individual or business to go through with. Finally, with corporate taxes being cut

there is more money left for Spotify in order to be able to invest in their technology. This can

lead to long term benefits for Spotify which could lead to higher profit in the end.

Since Spotify entered the market in 2016 the inflation rate has ranged from -.23% to

.99% up to 2021(MacroTrends). Spotify entering when there is deflation was not the best move

due to the fact that during deflation currency is worth less value than normal and therefore there

will be a decrease in consumer spending. Along with this, consumer spending will also decrease

due to people being conservative and saving their money to wait for their currency's value to go

up. Due to this deflation, the Bank of Japan decided to have the interest rate be negative to

encourage consumer spending. Therefore, the interest rate has stayed at a negative of .1% since

2016(Trading Economics, 2022) as a policy from the BoJ. The negative interest rate generally
causes a lender to pay the borrower for their loan but charge if they place savings in their bank

accounts; however, this can affect banks borrowing from the government as well. With the

negative interest rate being used to increase consumer spending there is still one more downfall

of deflation that must be taken into account: unemployment.

With deflation there is higher unemployment typically due to companies not having

enough money to keep on as many employees as before. Since 2016 unemployment has

fluctuated from about 3.25% to 2.25% until 2022(Trading Economics, 2022). 2016 had the

highest unemployment rate within that time span. However, contrary to what would be expected

with the deflation rate these are actually some of the lowest unemployment rates in Japan within

the last 25 years. With low unemployment rates there are more people with money to spend on

everyday necessities and wants. Therefore, this is a beneficial aspect to Spotify entering the

market at the time it did. With more people employed there will be more money circulating

which can allow for more people to move towards Spotify’s subscription plans.

Social Factors

An important factor to consider that is currently vital to companies in Japan is how social

attributes are. Japan currently has the factors of their population aging, companies suffering from

less people available to work, a rise in single households, as well as customers that are easily

influenced by social media influencers. All crucial components to take into consideration for

entering the market.

To start off with the aging population in 2022 “those over 65… account for 29.1% of the

population “(The Japan Times, 2022). With the Japanese population having less births occurring

and the older population gaining as the majority Spotify will have to make their interfacing more

user friendly for the older generation if they want to capture them as part of their target audience
as well. Furthermore, Spotify has a target market of “those aged 12 to 34 [with] 29% [of]

members [from] the millennial generation, and 26%... under 24 years of age”(Spotify Target

Market Segmentation, 2022). With over 50% of members being from generation Z or the

millennial generation there is some questioning as to why Spotify would enter the market when

the majority group in terms of age range in Japan is only becoming older.

One consequence of the aging population is that “[o]ver half of companies in Japan are

suffering from a shortage of full-time employees”(Kyodo News, 2022). This establishes that

employees will be difficult to find when creating offices in Japan and can lead to poor service

due to being short staffed. Spotify would have to offer more benefits than the average Japanese

company to be seen as worthy of joining due to the demand of workers being higher than the

overall supply.

A rise in single households explains to Spotify that they need to make their individual

plan more enticing due to less consumers having the need of a duo or family plan. However, a

focus and mass advertising of the student plan would be essential due to the high education rate

in Japan where ”65% of 25-34 year-olds had a tertiary qualification in 2021 compared to 47%

on average across OECD countries”(Education GPS, 2022). Japan can see that their general

target market of the two generations are generally going to be students as well and that this target

will be most likely under the demographic of students as well. Students also typically have a

lower willingness to pay which is evident that Spotify is already taking into consideration when

viewing how the student plan is much cheaper than the individual plan.

“Further, 10%-15% of customers buy products based on the recommendations of social

media influencers“(Crowjack). Spotify is using this information seen previously in this paper

through Spotify focusing on incorporating celebrities into podcasts and other areas such as
Kemio and bringing in other entertainment groups. Knowing that a good percentage of customers

listen to recommendations makes it easier for Spotify to be able to know how to properly

advertise to their target audience.

Technological Factors

Japan has one of the highest R&D expenditures with a 3.5% of GDP in 2020 which was

the second highest percentage right behind South Korea(Heney, 2021). Given Japan’s ranking,

Japan is a splendid country to enter into because there will be more innovation and therefore,

more economic development. With this, Spotify can partner with a technology company or have

employees from Japan that can work on their cybersecurity as well as their technology in

general. They can get on top of the latest trends faster due to research and development being

prioritized.

In terms of infrastructure, Japan had the secondest best ranking(Global Rankings, 2018).

Infrastructure includes communication networks, power lines, and ease of transportation.

Infrastructure allows Spotify to have an easier entry way into the country due to not having to

worry about power lines being available. With power lines unavailable the exchange of

information will be slower from device to device as well as powering Spotify’s office spaces.

Environmental Factors

Japan is predominantly known for having none of the major natural resources and that the

country primarily relies upon importing natural resources to be able to sustain its economy. This

can be problematic for businesses in general due to having to constantly import which can be

more expensive. Importing is not the best for the Japanese currently however, because the yen is

so weak. The yen is only staying low due to the constant low interest rates as well.
 “Spotify says that 42% of its GHG emissions come from listener streaming” (Energy

Tracker Asia, 2022) however they have “shift[ed] [their] content from traditional data centres to

the Google Cloud platform [which] is carbon neutral”(Energy Tracker Asia, 2022). Carbon

neutrality is the process of balancing the amount of carbon dioxide emitted with the amount of

carbon dioxide removed from the atmosphere. Luckily, Spotify is already taking measures

towards carbon neutrality although, there is still the factor of greenhouse gas emissions. Due to

Japan looking towards reaching net zero in terms of GHG by 2050, Spotify will have to find

more environmentally friendly ways to use for their listener streaming. Along with this, as long

as consumption of streaming is under 5 hours then there is less GHG emissions compared to a

vinyl as well as a CD(Energy Tracker Asia, 2022). Most consumers tend to listen to an

abundance of different songs rather than a focus on specific albums. With this knowledge, over

time less GHG will be emitted compared to if every album was made into a CD or vinyl despite

consumers generally just listening to a song or two from said album.

 Legal Factors

An important part of the music industry is copyright laws and how easy it is to be able to

get permission from an artist and if the artists and others are able to copyright their work to

secure royalties. “In Japan, copyrights are automatically granted when content is created. [Along

with this] secondary sharing of copyrighted material is prohibited without the rights holder's

consent”(Writer, 2022). However, when there are difficulties obtaining secondary permission to

use the material this is generally due to there being multiple rights holders or an inability to find

the original creator. There are databases for material with unknown rights holders that can be

accessed by paying a usage fee to a government group. Then in time, once the correct rights

holder is found this usage fee will go to them if ever found at all(Writer, 2022).

Spotify would need to know the correct rules of how these databases go once entering the

market in order to access more material to be on their streaming platform. Spotify must prove

that they have truly searched for the unidentified rights holder in order to be trusted to do the

group usage fee as well. This places a burden on Spotify if they miss certain information and

then can be put blame onto them for not searching hard enough.

SWOT Analysis: Spotify as a Company

Strengths

Some of Spotify’s biggest strengths include the following: brand reputation, their

freemium model, early mover advantage, an immense content library, user friendliness,

algorithm creation and personalization, as well as other features. Due to being one of the first

DSPs in their area of expertise they obtained the early mover advantage where they have gained

substantial brand recognition, strong customer loyalty, as well as time to create economies of

scale. The ability to create economies of scale or cost efficiency is through having more time to
research and test out the waters of their market without having to pay attention to their

competitors in the beginning of their launch.

Moreover, the freemium model is still a huge competitive advantage they have for

attracting customers that their competitors still have not been on board with except for a free

month trial of their platforms. This gives consumers unlimited time to test whether or not Spotify

is the right streaming platform for them and allows them to gain more appeal and loyalty over

time. Furthermore, the subscription plans do not have a need for an internet connection as long as

the content that is desired at those moments are already downloaded. Another strength is the

accessibility of the platform. Spotify is available in app stores for both Samsung and Apple

phones. “More than 60 percent of all mobile device users in Japan use iPhones”(World

Population Review, 2022) which indicates that Spotify has a strength of having a vast majority of

Japan having the capability to download the Spotify app with ease. Finally, there are also certain

features that are super appealing towards customers such as algorithm personalization along with

features such as discover weekly and Spotify Wrapped.

Weaknesses

In terms of weaknesses some of the major weaknesses include the following: licensing

fees are costly, the requirement of an internet connection on freemium model, not a lot of

differentiation, and due to low payouts artists have been known to take their music off of this

platform. Spotify is known to pay “music owners less than the majority of its

competitors”(Gaille, 2021). This can be extremely detrimental for Spotify in the long run

especially for top artists who will still have consumers listening to their music whether or not

they are on a popular streaming source. Concerning licensing fees there is a lot to consider. In

2021, 73.2 percent of Spotify's revenues went mainly towards royalty payments towards music
rights holders and other fees”(Götting, 2022). This is a huge expenditure solely towards licensing

and royalties which does not leave much more room for R&D expenditure when everything else

is taken into consideration for other expenses.

Opportunities

Opportunities for Spotify include the following: ease of tapping into global markets,

focusing on video podcasts, artist endorsements, and prioritizing partnerships. Music streaming

is a relatively easy market to transfer into another country after all the basic programming is

done as well as focuses on language integration. The main part that is a worry is incorporating

that country’s music as well and researching how to properly market based on their values. Next,

there is the attractive point of video podcasts. “Spotify’s podcasts experienced a 200% increase

in listening in 2019 year-over-year“ (Gaille, 2021). With podcasts only gaining more popularity

there is great interest for Spotify to invest in more podcast creators on their offered attributes.

Another path that can offer a multitude of opportunities is forging partnerships. With

partnerships there can be more information accessible through joining forces and sharing

knowledge. One partnership that was also a smart move on Spotify’s part is with Samsung which

“[a]s of 2018… was the world’s most popular smartphone in the world“(Gaille, 2021). With the

help of the world’s most popular smartphone there is also more access to different demographics

as well as the accessibility of Spotify on Samsung phones in the play store. Finally, artist

endorsements increase consumer loyalty and market share. This leads to artists fans having more

of an incentive to use Spotify just as the ones they look up to do.

Threats

One of the most significant threats to Spotify surviving is that they generally have been in

the losses since they originated. Spotify has instead been focusing on investments rather than
profitability which is why they have consistently stayed in the negatives. Other threats include

lots of competitors with technological prowess, legal disputes over streaming rights, artists

leaving the platform due to poor payouts, and cybersecurity attacks. With all of Spotify’s

competitors and little differentiation it makes perfect sense why they are focusing on investments

and innovation in order to stay ahead. Along with the fact that Spotify pushes to have their

freemium model also in order to stay on top of their competitors. Next, there will always be legal

disputes over streaming rights and it is visible in just how much of Spotify’s revenues goes to

licensing expenses or how much they are trying to remain in the realm of legality. Copyright is a

very complicated part of the industry because there can be so many people connected to the

creation of one song or podcast. Furthermore, Spotify is one of the lowest paying streaming

platforms which is evident by artists that have left the platform due to feeling as if they are paid

unfairly. In terms of cybersecurity, “[m]edia piracy is also rampant, and Spotify is one of the

most pirated content websites on the Internet, second only to YouTube''(Gaille, 2021).

Considering that Spotify is already based on a freemium model as well as Youtube this poses

concerns. Spotify will have to pour more money into cybersecurity in order to fix this problem.

Resistance to Spotify

One of the most difficult components for Spotify entering the Japanese music industry is

how different the environment is compared to other countries they have been involved in. For

starters, “Japan's music industry is hostile to the idea of distributing songs for free.”(Writer,

2016). In light of the fact that Japanese music listeners are also very avid fans of idols as well,

not awarding artists and groups can be seen as not truly valuing them as true talents. In Japan it is

also very well known that they have a focus on CDs and vinyls rather than digital streaming.

After even “[f]our years into the launch of Spotify in Japan, CDs… still accounted for 70% of all
recorded music sales in 2019”(Bezemer, 2022). CDs stay popular “due to product bundling” in

which labels “add exclusive items such as priority vouchers for purchasing concert tickets or

handshake events”(Bezemer, 2022). These product bundling tactics are all in all seen as more

valuable for fans primarily because this is the culture already in place in Japan. There is less

excitement for fans to truly know their artists when listening to music is as simple as streaming

and there is no community collectiveness.

Furthermore, there is “a limited Japanese music catalogue at launch, which severely

limits its appeal with the domestic audience. According to licensing official at Spotify, Akira

Nomoto, the limited availability is a result of Japanese record labels being reluctant to add their

libraries to online streaming services, seeing no added value over physical sales, which are

generating enough revenue“ (Bezemer, 2022). These are all very valid pointers from the

Japanese record labels because they have no real incentive to give up their revenue from physical

sales to a newcomer who can only offer them presumably lower sales but more recognition.

Without Spotify gaining support from record labels they can only get smaller artists to be able to

appear on the platform which can only generate so many new Spotify users. In addition to this,

there is a region lock on certain artists; “when music is not available in your country [due to] the

music label, artist, or legal owner decides where they want their music to be

available”(Community Spotify, 2021). Without support from the rights holders, Spotify is at a

severe disadvantage for encouraging Japanese consumers to listen to their music. This is

especially true when “Japanese consumers value Japanese music over Western songs”(Bezemer,

2022). Unless, Spotify could convince Japanese consumers to rethink their values and swiftly

they would need to gain licensing rights to have Japanese music on their platform.

Spotify’s Effects on Japan

 Some of the major effects Spotify has had on the Japanese music industry is a vast

change in CD versus streaming usage, Spotify gaining a big market share, and making music

easier to stream rather than pirate. “Unit sales of CD[s] have decreased from 168 million in 2015,

to 132 million in 2019“(Bezemer, 2022). This is a decrease of about 21.5% of total sales just

since music streaming services entered the market. However, on the other hand they have been

generating growth for Japan as well. “[S]treaming services like Spotify generated $385m

(41.97bn Yen) for the industry in Japan in 2019, representing growth of 33.8% on the 31.37bn

Yen generated by the format in 2018”(Ingham, 2020). With Spotify gaining speed in the

Japanese music industry it seems as though there will continue to be a decline in CD sales.

However, the fight will continue to be difficult due to Spotify not being able to currently offer

any product bundling which comes into play with Japan’s booming physical sales. Spotify will

slowly increase in popularity alongside other streaming services while CD sales decline which is

evident in the fact that “audio streaming revenues in Japan nearly doubled just in the two years

between 2017 (23.89bn Yen) and 2019 (41.97bn)”(Ingham, 2020).

 (Ingham, 2020)

On top of that, streaming tends to lead to less piracy due to the complete ease of

streaming as well as with Spotify’s freemium model. A “survey revealed that 63% of people who

once pirated music have instead moved over to streaming services to fill in the gap”

(TheMusicNetwork). With less piracy there will also be an increase in general sales in the market

due to less people taking shortcuts to illegally download music and not having the rights holders

be able to collect their royalties from this.

Finally, in regards to market share, “Spotify claims [a] 21.4% market share”(Bezemer,

2022). This is a huge market share in respect to any industry. This demonstrates how much

power Spotify has been able to have a hold of since their debut in Japan in 2016. One of the main

reasons Spotify was able to partake in this share was due to unexpected benefits of Covid 19.

With citizens being urged to stay in their houses as well as a full 180 in terms of live

performances Spotify was able to swoop in and take those who were searching for a new method

of retrieving their music kick again. “In 2021… streaming… accounted for about one third of the
music royalty revenue generated in Japan”(Nippon, 2022). With streaming accelerating its

impact there is the question of what is to come for CDs. There could be less intense fan bases

due to the ability to now find new artists way easier and could decrease the idol impact in

general. However, there is of course the possibility of streaming allowing for more idolization of

groups such as what happened when Spotify entered South Korea. Spotify entering South Korea

only led to more revenue for K-Pop artists and more exposure. However, the appeal of J-Pop

artists for Western consumers still has been a bit slow.

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