How will Spotify change the traditional music industry - Assignment Example

? HOW WILL SPOTIFY CHANGE THE TRADITIONAL MUSIC INDUSTRY? by Presented to Corporate Environment and ) (Date) One of newest ways of enjoying music in these days is through online streaming. Through online streaming, consumers actually listen and enjoy music through various music titles streamed in the internet; in this case, it is essential than consumers must have a high speed internet connection, for the, to be able to listen top streamed music uninterrupted. And, the good thing about listening to streamed music is that it is actually free, as opposed listening music from CDs or downloading from the internet, where consumers must either purchase those CDs or pay for downloading them. Given the fact that the digital revolution is already in full swing, and that most entertainment-based consumer products right now already come in digital formats, there are already a wide array of music that is present on the internet, and more and more people already chooses the internet as a way to listen to their personal music playlists, especially through streaming. Given this background, there are already several companies that are aiming to make money out of offering music streaming to millions of consumers worldwide, and one of the biggest of these companies is Spotify (Youngs 2010). Spotify is actually a Swedish company that gives streaming services to consumers worldwide, and makes money from it through the advertisements and merchandise sales posted in the site as consumers stream for music (Young 2010). With an estimated consumer base of almost seven million users in six different countries, Spotify is actually aiming to expand its market and make real business out of streaming music, although there are some critics that points out to the economics behind making money out of streaming music (Youngs 2010). However, with some observers stating that streaming will soon overtake downloading to be the most popular form of digital music, streaming companies such as Spotify is optimistic that they will actually gain real business out of it. This paper aims to look into how Spotify will change the traditional music industry. Given the significant breaks of streaming music from the traditional music industry, where consumers do not purchase their music, and where artists, producers and the company itself to not generate profits by directly selling music, surely, Spotify generates in a lot of changes in how the music industry works. In this case, the researcher would like to look at how Spotify changes the traditional music industry by using the five forces, which includes the following: Supplier Buyer Competitors Threats of New Entrants Threats of Substitutes In addition, the researcher would also try to integrate the different strategic maps used in the module, in able to provide a deeper breadth and insight into the analysis of the entry of Spotify in relation with the traditional music industry. In particular, the researcher would focus upon using the triangle map and the delta model to give deeper insights on the changes that Spotify will bring to the music industry. How would Spotify then affect the force of suppliers in the music industry? Of course, in the music industry, one of the main suppliers includes the company that distributes music to consumers, which in this case is the Swedish company Spotify. However, it is important to take note of the fact that the supply process is not a simple process, but it is rather complicated; this includes agreements with respect to the artists and the producers of the music that Spotify is about to offer to consumers. In the traditional music industry, the supply process goes this way: the company (which either distributes music through the sale of CDs or downloadable digitized music) pays royalty to the artists of the music. Then, the distributing company would earn profits through the direct sales of the copy of the music, to where the artists would also have some percentages. In this case, extra income for the company may come from the different merchandise packaged with the music itself; however, the bulk of the revenues, as well as the royalties paid to the artists, would come from the direct sale of the music itself. Analyzing this process, it can be seen that the major incentive for the whole supply process would be the royalties to be paid to the artists, which will depend entirely upon sales. This is what Spotify changes; for it actually generate revenues not through the actual selling of the music, but through the ads generated in the mobile applications given by Spotify to consumers. The main challenge here, however, is the insurance that the royalty given to the artists would be competitive, given the fact that it depends upon ads and not through direct sales; and as early as now, there are already fears that this may not seem economically sound. As said by one critic, Some artists have complained about the small amount they have made from Spotify. Swedish artist Magnus Uggla removed his music, for example, claiming he earned in six months "what a mediocre busker could earn in a day." (Youngs 2010) In this case, it can actually be seen that at the present, there are small incentives for artists to actually give Spotify rights to their music, given the tendency that they may receive lower royalties, as opposed to choosing traditional, non-streaming companies to distribute their music. While Spotify actually believes that “artist payments are increasing all the time as ad revenues and subscriptions go up” (Youngs 2010), it actually remains to be proven in the future. Such circumstances may pose threats with respect to the supply side of the music industry. However, the major change in the supply side (using the Delta model) would be in the form of redefining the customer relationship, wherein the supplier would need to establish long term relationships with their consumers in order for the company to ensure artists that they would get competitive royalties, as well as ensuring that they would attract enough ads so that they can get enough revenues to make artists happy and make their business profitable. With regards to the buyer side of the music industry, Spotify also introduces major changes. In traditional companies, they actually entice customers to own albums and other music collections for their favoured artists through their purchase of CDs or downloadable digital files. In this case, the central theme would include inducing consumers to actually own music, and expanding their personal collection. In this case, the major break with Spotify is that it does not induce consumers to own a personal collection of music; on the contrary, it entices consumers to enjoy the music that they want, when they want, and where they want, without actually owning it. As said by one observer, it includes reaching out for the “passive consumer,” wherein Consumers want an experience that includes their audio, their video, their band information, their merchandise and ticketing information all in one experience," believes MySpace chief executive Owen Van Natta."Having that type of multi-dimensional music experience will also bring with it multiple revenue streams. It won't just be advertising supported. (Youngs 2010) In addition, while traditional distributing companies actually target the “active costumer” that aims to own a personal collection of music, streaming companies such as Spotify actually wants to create a new environment for music consumers, wherein experience will dominate the scene without them having to own it. In order to entice consumers, Spotify would then rely upon popularizing the new experience that consumers can get from streaming music services, the unique advantages of being able to listen to a wider variety of music, changing specific playlists according to their mood, and enabling them to have the flexibility of listening to music when they want, whatever they do, and where they are. Applying again this analysis into the Delta model, it can be seen that Spotify is actually positioning itself according to the framework of total customer solutions, wherein they emphasize on redefining customer relationship (a dramatic shift from owning to simply listening music, from having a personal collection to having a new experience on listening to music). Of course, as described by the Delta model, the key in achieving total customer solutions in the context of redefining customer relationships, it is essential to have groundbreaking technology that would enable such experiences. In the context of streaming music, it is essential then for consumers to have a high speed broadband internet access, for them to enjoy music uninterruptedly. This is very critical, for when a high speed wireless internet connection is not in place, consumers would actually suffer from interrupted music, and this would make music streaming continually inferior to owning music merchandise. However, looking at the current market make-up, especially when looking at a worldwide scene, consumers who have access to a reliable, high speed, wireless internet connection is not that broad, and technical problems would certainly present problems to the market of music streaming companies such as Spotify. However, with the continual development of technology, as well as the expanding reach of consumers having a reliable internet connection, especially among the younger population, Spotify may have a good chance in the near future. Another challenge that is presented in the new world of consumption based on music streaming, especially as visualized by Spotify, is the fact that a reliable technology of mobile applications is needed, in order to realize the new consumer experience of enjoying music. In this case, the development of technology is again crucial, for the ability of mobile applications in providing satisfactory streamed music to consumers requires a high degree of technology involved. Again, Spotify is looking into the future, wherein if such innovations in mobile applications providing streamed music would be a success in the near future, Spotify may actually have good chances of revolutionizing the buyer side of the music industry. However, at the present, such degree of technology is still absent, making critics doubt such move to streaming music. Still, companies such as Spotify is still optimistic that the market will soon move into a more consumer-based environment, the reason why Spotify as a distributing company is positioning itself into the dimension of total costumer satisfaction, and is focusing upon revolutionizing the consumer experience. As said by optimistic advocates of the shift to consumer based music streaming, “It’s just inevitable - the world is going to this more consumption-based model” Simon Wheeler of record group Beggars "The difference in the US is the labels are not yet convinced that streaming services can exist alongside download services and purchase of physical product," says Mark Sutherland, global editor of Billboard magazine."They're worried that they might be giving an awful lot away, and not necessarily get much back." Simon Wheeler, from independent record group Beggars, says the industry must accept fans will soon move away from owning music."We're shifting away from that fast, and anyone who doesn't face up to that fact and deal with these new financial models isn't going to have much of a future."It's just inevitable - the world is going to this more consumption-based model," continues Wheeler, whose labels are home to MIA, Adele and Vampire Weekend. "It doesn't matter. It's going to happen, and we need to restructure the business around it." (Youngs 2010) As long as innovations in technology will go as Spotify expects it, and as long as the market will really shape up in a more consumer-based orientation, Spotify will have good chances of meeting its expectations of creating a sustainable consumer base that enjoys music better than it is enjoyed today. When consumers will soon realize the fact that through music streaming, they can actually listen at a ... computer, listening to a new album, or an old favourite, or a playlist of songs a friend has suggested...over the internet...pick up your mobile phone and keep listening, and your playlists automatically come with you. Your car stereo is connected and knows your favourite songs too. And when you get home again, so do your games console and web-enabled TV set. That is the utopian vision of listening to anything, anywhere that has been peddled for years...They promise to connect us to a vast song catalogue in "the cloud" - a technical term that means "the internet" - permanently and instantly via every possible device, bar your toaster. (Youngs 2010) Anticipating such events to take place in the music industry, Spotify aims to strategically position itself in redefining customer relationships. With respect to competitors, Spotify will actually change how the traditional music industry works by revolutionizing consumer experience wherein consumer-based models of free, online music streaming would generate more appeal to consumers, as compared to companies that actually focus on the physical distribution of music, either by companies that sell CDs or companies that offer downloadable music. Take note that in the traditional music industry, traditional companies actually rely upon consumers who are more willing to purchase music, given that they prefer listening to it through having a personal copy of it. In this case, however, the options of the consumer would only be limited to the music that he or she actually bought. The biggest competitive advantage that is offered by Spotify, through streamed music, is the fact that it actually offers streamed music for free, wherein consumers would only pay a minimal amount for the mobile application provided by Spotify, as well as on a clearer streaming of music. For the consumer, of course, free music would be far more enticing as compared to having to purchase music from traditional companies. However, the question remains: would the quality of streamed music would be the same as of having a digital copy of it? In this case, as long as Spotify is able to have the technological capacity to provide quality music through online streaming, as well as bring able to have the necessary mobile applications to let the consumer enjoy it more flexibly than before, Spotify may surely change the landscape of the music industry, introducing a more consumer based and technologically dependent way of listening to music. Also, the question remains in the infrastructure present, wherein traditional music companies has more logistical and technological capability of distributing music through selling music merchandise. In this case, traditional companies have all the necessary physical capital to be able to distribute music to a wider audience, even though it may have a certain price tag. Given the fact that Spotify does not yet have the physical infrastructure as compared to traditional companies, they may have a disadvantage at first; but they cannot be counted out yet given that more and more consumers right now are actually choosing the internet to purchase desired products, and enjoy certain goods and services. Another crucial competitive advantage that Spotify offers, as compared to traditional companies, is the availability of music that consumers can actually listen to. Obtaining music merchandise through traditional means would require consumers to actually purchase all of the music that they want to listen, for they cannot do otherwise. As long as consumers want to listen to a new artist, or when consumers suddenly change genres due to popularity trends, they are required to buy new music merchandise in order to enjoy listening on it. And when consumers do not have enough finances top buy trending music, then, they cannot enjoy it. However, through online streaming, consumers actually have the ability to choose from a wide range of music without having to pay for each one of it. In this case, then, consumers do not have to purchase every single music merchandise that they want to listen, which is more cost effective especially when a certain consumer would want to listen to a wide variety of music. In addition, online streaming also makes possible the creation of personalized playlists according to the specific tastes and preferences of consumers; in this case, it can be said that one major competitive advantage of Spotify to other traditional companies is its flexibility, and the wider variety of music that consumers can listen to. Given the cost-effectiveness, as well as the new experience that Spotify offers to its consumers, it can actually be said that it revolutionized the traditional music industry by breaking ground a new orientations on how consumers can actually enjoy music, for them to be able to edge out their competitors. However, there are still some questions involved in the new paradigm of enjoying music as Spotify advocates, especially in the availability of the necessary technology and the economics of ad-based revenues. With regards to the threats of new entrants, it can actually be seen that Spotify has a major advantage, given that it is actually one of the pioneer companies that actually offer streamed music services to consumers worldwide. In addition, Spotify is also one of the leading companies that actually present a consumer-based model in distributing music products to consumers around the world. In this case, if Spotify entered the market as a new competitor, it would face grave difficulties, given the already established consumer base and infrastructure of traditional music companies. However, the fact is that Spotify actually entered the music industry with anew revolutionary concept of streaming music to consumers, and giving them a new way of enjoying music without having to purchase them. Aside from the fact that it has relatively shrugged off the risks of being a new competitor, it also creates a major advantage over new competition in providing streamed music services to consumers. In addition, Spotify also have a major advantage over other traditional music companies that offer substitute music products. Given the fact that substitute music products still offers music merchandise in the traditional way (that is, selling CDs or music downloadable), free personalized streamed music offered by Spotify to consumers still has a major advantage. Furthermore, because of the fact that they offer a new consumer-based model of music consumption, companies that offer substitute music merchandise has yet to keep up with this challenge. Reference List Youngs, I 2010, Is streaming the future of music?, BBC NEWS, viewed 20 January 2010, http://news.bbc.co.uk/go/pr/fr/-/1/hi/entertainment/8481658.stm Read More