Home Case Study The Business Model Of Spotify: No. 1 in the Music Industry

The Business Model Of Spotify: No. 1 in the Music Industry

by Nisha Garg
Spotify Business Model

Spotify is the world’s largest music streaming platform. It has changed the way people listen to music. Spotify has created a large community for people to share their music interests. If you are a listener or a creator, Spotify has something to offer to everyone.

The proof of the success of Spotify comes from the following numbers. Spotify has 456 million monthly active listeners as of 2023. Out of which 195 million are premium subscribers. And these numbers are increasing as you are reading this article.

It provides users with access to millions of songs and podcasts. As of January 2023, Spotify has over 80 million songs. Additionally, the average number of songs uploaded every month is around 1.8 million.

Who is the target audience of Spotify?

The target audience of Spotify is individuals who enjoy listening to music and are looking for a convenient and easy way to access a wide variety of songs and albums. Spotify targets both casual music listeners and dedicated music enthusiasts and is available to users across a wide range of age groups and demographic backgrounds.

Millennials and Gen Z make up most of the user segment of Spotify. Individuals in the age bracket of 25 to 34 years contribute the most as the target audience of Spotify, followed by Gen Z aged 18 to 24 years.

Here’s a table that breaks down Spotify’s target audience:

Age18 – 34 Year Old
Gender Ratio58.95% Male & 41.05% Female
Top CountriesUS, Brazil, UK, Mexico and India
Total Markets180+
TypeMedia & Entertainment/Music Lovers

What is the value proposition of Spotify?

Spotify offers everything that a user might want to hear in high quality. From the oldest to the newest songs. Not only songs, motivating, knowledge enhancing and spiritual podcasts. Spotify also has relaxing music, playlists to calm you down in anxiety, help you meditate, and even the sound of rain falling and birds chirping everything.

Users can create profiles, choose their favourite artists, genre and discover a massive database of music and podcasts based on their listening habits, make and share customised playlists, and even host their podcasts for free on the platform. Spotify offers a variety of ways to discover new music. Some options include:

  • Browse the “Discover” page for personalised recommendations based on your listening history and preferences.
  • Check out the “New Releases” page for the latest albums and songs from various artists.
  • Search for a specific artist, album, or song, and Spotify will suggest similar content.
  • Use the “Radio” feature to create a station based on a specific artist or song.
  • Follow your favourite artists, friends, and influencers to stay up-to-date on their new releases and playlists.
  • Look into Spotify’s curated playlists such as “Discover Weekly” and “Release Radar”, which are updated every Monday and Friday with new music based on your listening history and preferences.
  • You can also check the “Daily Mix”, which are playlist generated based on your listening habits and the music you listen to often.

How does Spotify make money?

Spotify business model is a freemium model. The basic service is free, but users can pay for additional features. The primary revenue source for Spotify comes from premium subscriptions, which offer ad-free listening and other features such as offline listening and higher-quality audio. Spotify also generates revenue through Ad-supported services. Spotify provides an ad platform with billions of listeners.

Revenue streams of Spotify

There are two significant revenue streams of Spotify, one is the subscription model, and another is advertisement services.

Subscription model

It is the primary revenue source of Spotify. Spotify provides premium features to its users to lure them into buying it. The Premium edition has no commercial interruptions, downloading option for keeping music offline, playing music anywhere across a variety of devices, and paying your way through various payment ways and unlimited skips.

Spotify Premium is offered in four different versions to accommodate different types of listeners. Individual, duet, family, and student options are available. The table below details the optimal amenities offered under each scheme.

Advertisement services

‘Your audience is listening,’ says Spotify. Advertisers can analyse their audience through demographics, device and connection, listening behaviours, forecasted interests, off-platform behaviours, and historical interactions using the platform’s audience targeting tools. Furthermore, if the campaign goal changes in the middle of the campaign, adjustments to the ad content can be made quickly.

There are different types of advertisements on Spotify based on size and user engagement:

  • Sponsored Playlists are those in which businesses sponsor the platform’s most popular playlists for a week. It raises brand awareness and helps to market the brand. They are compatible with computers and mobile devices.
  • Branded Moments and sponsored sessions are vertical and horizontal video adverts, respectively, that appear at the start of playlists and, when completed, provide listeners with 30 minutes of commercial-free streaming. They are compatible with tablets, smartphones, and laptop computers.
  • Video Takeovers are presented between songs during a listening session when users actively navigate the collection to enjoy and discover music and podcasts. They only work on laptop computers.
  • Display advertisements are clickable banners that appear at the bottom of the page for 30 seconds and are visible throughout. For 24 hours, the brand message is shown on the front of Spotify’s Desktop Homepage. This ad type is only available on laptops.
  • Overlay ad is provided For optimal brand effect when the customer returns to the Spotify app. This ad serves as a platform welcome back screen and engages users.

Cost Structure of Spotify

Spotify makes billions of money around the year. To understand the profit, you must also know the company’s expenses. The two major expenses of Spotify are as follows:

1. Royalties or licensing fees

The money paid to own the right to stream specific content. Spotify pays recording royalties to the music label and the artist and composition royalties to the song’s owners and composers.

2. Company operations

The rest of the costs incurred by the company to deliver the service comes in company operations. This includes the cost of revenue, money spent on R&D, administrative fees and the money spent on sales and marketing by the organisation.

Related Post: Spotify Marketing Strategy: It’s More Than a Plan

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