Spotify and the future of personalized music

Shravan Tickoo ( PPM ) - BYJU’S

 The global industry’s revenue bottomed out at $14 billion in

Overview of the digital

2014 but grew to $20 billion in 2019, back in line with 2004
levels.

music industry ? This was primarily because of 2 reasons

1. Digital streaming adoption

Aka the state of the

2. Access to internet becoming cheaper

The convenience and personalization of music streaming,

streaming industry in combined with the accessibility afforded by smartphones and

2020
smart devices, has driven recorded music’s growth

The global streaming revenues grew at a 42% CAGR (compound

annual growth rate) since 2015, compared to the entire
recording industry’s 9% CAGR
 According to IFPI, there were 341 million global paid streaming accounts by the end
of 2019.

Growth of streaming Even The figure represents less than 11% of the 3.2 billion global smartphone users .

segment in terms of But in terms of adoption - this is the fastest growing segment which is growing at a
CAGR of 42% in comparison to 9% in physical music industry To put this into

adoption ?
perspective :)

1.The United States has 30% population in 2020 ( 99 million paid subs ) using
digital streaming in comparison to 3% in 2012
1. Is the music recording industry growing? 2.Sweden where SPOTIFY is has this number as high as 52% of their population

2. Is streaming good for the music So understanding the basics

industry?
3. Is live music an industry in decline? After nearly two decades of piracy-driven declines, the global music recording
industry’s revenue bottomed out at $14 billion in 2014. Since then, due in large part
to streaming, revenue has grown to $20 billion in 2019, back in line with 2004 levels.

The music industry has benefited from the growth of streaming services, which have
been the main driver of global music recording revenue growth since 2015.

Goldman Sachs projects global live music revenue to decrease 75% in 2020 before
recovering in 2021 or 2022.er (50-60%) than physical music products (40-50%).
 There have been modest disruptions to streaming as a result of
COVID-19. At the start of the pandemic, audio streaming saw a
The paradigm shift in decrease in listening hours as consumers drove less and focused on
other platforms (e.g., video streaming) and forms of entertainment
streaming due to (e.g., TV and video gaming)

COVID- 19 ? But the modest decline in engagement measured by listening hours

has not impacted consumers’ willingness to pay for audio streaming.

Spotify’s Q2 2020 Monthly Active Users (MAU) and paid streaming

subscribers increased by 29% and 27% year-on-year, respectively,
which was at the top of its guidance.

As a result, Spotify’s Q2 2020 premium revenue increased by 17%

year-on-year.
 Spotify started in 2006 , when the majority of digital music

The music
industry paradigm was shifted in two parts

1. Naspers being famous but illegal piracy being a huge

revolution - How issue as it was peer to peer streaming and beyond that it
took several minutes to download a track
Spotify Started 2. Apples music where you had to pay $2 per track

Spotify has to find a niche between the two extremes combating

privacy and also giving music instantaneously because the
human brain can’t process anything which is less than 250
milliseconds and makes it instant

Spotify founders words -

““We spent an insane amount of time focusing on latency

when no one cared because we were hell bent on making
it feel like you had all the world’s music on your hard
drive. Obsessing over small details can sometimes make
all the difference. That’s what I believe is the biggest
misunderstanding about the minimum viable product
concept. That is the V in the MVP.” –”
 Spotify focused on two major pillars of growth in its formative
years and then expanded to 2 more in its growth years
The core pillars and 2006-2010

the freemium 1. Latency of usage - if a track can be used by the free users

product launch
almost instantaneously it a super experience
2. Aesthetic appeal to UI - initially spotify was a website where
freemium users can consume 20 hrs of content per month
and play a track 5 times max

This was so popular that it lead to a conversion rate of 7 percent

which was way above in comparison for a freemium product such
as dropbox which had a 4 percent conversion rate

The only thing now spotify needed was more user growth since
ads + 7% conversion rate was burning cash for them

Another way spotify could have done this was tying a deal with
record labels whose sales were already down in retail but had a
conversion of 20+ percent and they had no clue how streaming
works and with the experience of naspers were averse to a
streaming deal with a new provider even with a better experience
 Soon after there Spotify realised that their freemium product was a hit
and now they wanted to “change” their product levers which can drive
The core pillars of user growth since record labels were averse

Growth and GTM : So they realised a superior product experience would a natural key
post the initial Product - Market fit

How Spotify shined So they focused on 3 pillars - 2010-2015

1. Moving to mobile , as the world was moving towards newer

geographies
2. Acquiring new customers using digital partnerships - FB usage
/ integration was pivotal
3. Discovering personalisation was key

Spotify when they penetrated the US did display ads and advertisers
were generous to showcase it to their audience for engagement and
then came the break point

4. As Sean parker was a investor in facebook - he introduced Ed to

Mark Zuck - The facebook integration did two things right lead
to a feature like Discover daily and also low CAC acquisition - i.e
1 million customers in 4 days as FB had a 50x large base than
spotify then
 Soon after Spotify resorted to a mobile only version and gained
users via FB integration
And personalisation They realised another pillar of great music streaming
happened :) 1. Listen and discover the music you like , you know or you
don’t know

For this very need they developed a feature called “Discover daily”

They were algorithmically curated and personalised

recommendations to users - by this time spotify reached a 25%
conversion rate on a 50 M user base

The feature enabled a curated playlist - with different songs at

the end and starting of the week which lead to break in the
personalisation bubble

2. Time capsule was another hit at that which is a curated list

of 20+ songs of teens and mid twenties - 20 years back

To put this into perspective -Discover daily has attracted 40

million users to the service and played 5B tracks on the platform
 Spotify understood that the true point of differentiation

Building Discover was not only latency but degree of discovery of music

daily As Spotify reached around 50 M users , they started

serious engineering work on Personalisation

The first effort on the beta was to use something

called “Collaborative filtering “

“Collaborative filtering is a method in which you identify users of similar types and
target users and cross recommend based on variables which are identified like
movie ratings for NETFLIX “
 The second model spotify chose was the NLP
language learning model
Building Discover 1. Natural Language Processing (NLP) models which
daily work to analyze text to provide you songs with a
similar background and description.
2. Audio models which related to analyze the raw
audio tracks themselves.

This helped SPOTIFY identify location based and

theme based waveforms for personalised music
 Here are some horizontal integrations which can lead to SPOTIFY to IPO
1.Ancillary products. One of Spotify’s most urgent challenges is monetizing
beyond subscriptions. Although paid subscriptions account for
The future of 90% of Spotify’s revenue, focusing on subscribers alone means that Spotify
is confining itself to a single growth metric. One way Spotify is by diversifying

SPOTIFY into ancillary products, such as ticket sales

2.Subscription price hikes. If the company is to succeed, Spotify has to

increase its margins. The simplest way to accomplish this is to raise
subscription prices. However, this approach is not without risk

3.Acquisition of smaller companies. Although services such as SoundCloud

are popular with fans, they pose little real threat to Spotify as a business.
Companies like SoundCloud do represent a significant opportunity for
Spotify to strategically acquire these smaller competitors to further expand
its audience and its roster of independent artists.

4.Launch its own record label/imprint. Given that the vast majority of
Spotify’s operational costs are tied to record-label licensing deals and
royalty payments to artists, it’s not inconceivable that Spotify could
launch its own record label. This would be a strategically risky move, but
it could have significant long-term potential, as it would eliminate at least
some of the most considerable costs Spotify has as a business
 Spotify has become a brand leader in the streaming segment by
focusing on core product led growth
Thanks and questions! 1. Latency
2. Mobile streaming
3. Personalisation
4. Aesthetic appeal to UI

It has become a behemoth where 75% of its subscribers are

paid and had a strong 2020 with a revenue of 1.36 billion dollars
and thus a very genuine 20 billion valuation !

Now I am open to questions please !

Thanks a lot for listening :)