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In this case study report, we leverage the Porters five forces framework to help us to recognize and analyze the important forces that are determining the profitability of the global music streaming industry. Using Porters five forces, we will evaluate the nature of competitiveness in the global music streaming industry and the impact of the five forces on Spotify, and its competitors as well as the entire industry structure and help us understand strategies Spotify is using to stay competitive, accordingly.

HARVARD
Kush, K. Jonathan (2021) "Spotify Porters Five Forces Analysis 2020-2021" 123 Writing [Online] at https://www.123writing.com/sample/spotify-porters-five-forces-analysis-2020-2021

APA
Kush, K. Jonathan. 2021. Spotify Porters Five Forces Analysis 2020-2021. 123 Writing. Retrieved from https://www.123writing.com/sample/spotify-porters-five-forces-analysis-2020-2021

Spotify Strategic Analysis Case Study


Key Learning Outcomes

By the end of the case, students should be able to:
  • Use Porters five forces model to analyse an industry on the basis of the five competitive forces.
  • Analyse the global music streaming industry and how the five forces have affected Spotify and rival firms, and their impact on industry structure, attractiveness, and profitability in a post covid environment.
  • Understand how Spotify is managing to defend against intense competition and the strategies it uses to create 'blue oceans' that are defensible, helping it maintain market share and competitive advantage.

 

Analyse the micro environment of Spotify and the global music streaming industry using Porters five forces.

1.0 INTRODUCTION


Spotify Technology S.A is currently the world’s most popular audio streaming subscription service. Started in 2008, the Swedish company serves more than 93 markets across the globe, where its 320million active users can stream over 60million tracks, and 1.9 million podcast titles via its premium (for subscription) and ad-supported (free) versions of its music streaming service (Spotify 2020).

As of October 2020, Spotify boasted 320m total active users, 45% of whom (144million) were paid subscribers, making it the market leader in the global music streaming market with 36% market share, followed by Apple Music (19%), Amazon Music (15%) and Tencent with (11%) of market share (Spotify 2020; Fitzpatrick 2020; Statista 2021). As will be seen in this Spotify Porters Five Forces analysis, it also means that collectively, the global top four control upto 81% of the global music streaming market, making it oligopolistic in nature, with consequences for industry competition, and profitability. The company’s revenue for the year ending 2019 was $7.3 billion, with gross profit of $1.8 billion and net losses of $197m.While the streaming giant has never been profitable, it has been experiencing exponential growth in the last couple of years, across key metrics including revenue, paid subscriptions, market share etc.

In this case study report, we leverage Porters five forces framework to help us recognize and analyze the important forces that are determining the profitability of the global music streaming industry in a post covid-19 world. Using Porters five forces framework, we will evaluate the nature of competitiveness in the global music streaming industry and the impact of the five forces not just on Spotify, and its competitors but on the entire industry structure and help us understand strategies Spotify is using to stay competitive, accordingly.

2.0 Spotify Porters Five Forces Analysis 2021

2.1 Competition from existing rivals

According to Johnson et al., (2017), the major determinant of the state of competition and the general level of profitability is rivalry among the firms within an industry. In some industries, firms compete aggressively to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. Whereas in other industries, price competition is muted, and rivalry focuses on advertising, innovation, and other non-price dimensions. Competition intensity is determined by factors such as seller concentration, diversity of competitors, product differentiation together with excess capacity and exit barriers according to Grant (2016). 

2.1.1 Seller concentration and diversity of competitors

Spotify faces very high competition in the music streaming industry due to existence of many other streaming services like Apple Music, Amazon Music, Tencent Music, Tidal, YouTube, Pamdora, Google Play, among others whose streaming costs are also in a close range and offer high quality material (music, videos, podcasts) and services to consumers. This makes switching costs between the streaming services low and gives the consumer power to choose between several streaming services. The intense competition and higher seller concentration led to the decline of Pandora, once the number 1 music streaming service in the US boasting up to 79million subscribers by 2019 (Westhoff 2020).
The result on Spotify has been a stagnant market share as rivals especially Amazon, Tencent and YouTube Music have all been gaining market share since 2018 at the expense of Spotify and Pandora, the latter bearing the biggest loss of subscribers during this period as shown in figure below (Trainer 2020).

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