Playing a new tune in a disrupted market MS&E 270 Fall 2016 - PowerPoint PPT Presentation

Playing a new tune in a disrupted market MS&E 270 Fall 2016 Hyder, Yash, Akash, Dhruv

Today’s playlist • Evolution of the music industry • Spotify 101 • Challenges • Strategic considerations • Recommendations

$10.00 $15.00 $20.00 $25.00 $30.00 $5.00 $- 1973 1975 1976 Yesterday (all my troubles seemed so far away) 1977 1978 1979 Music Industry Revenue (in billions) 1980 1981 1982 1984 1985 1986 1987 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2001 2003 2004 2006 2008 2009 2010 2011 2012 2013 2015

$10.00 $15.00 $20.00 $25.00 $30.00 $5.00 $- 1973 1975 1976 Yo Ho (A Pirate’s Life for Me) 1977 1978 1979 1980 Music Industry Revenue (in billions) 1981 1982 1984 1985 1986 1987 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2001 2003 2004 2006 2008 2009 2010 2011 2012 2013 2015

Enter iTunes (Don’t forget my son, to include everyone) $10.00 $15.00 $20.00 $25.00 $30.00 $5.00 $- 1973 1975 1976 1977 1978 1979 1980 Music Industry Revenue (in billions) 1981 1982 1984 1985 1986 1987 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2001 2003 2004 2006 2008 2009 2010 2011 2012 2013 2015

$10.00 $15.00 $20.00 $25.00 $30.00 $5.00 $- Good Times Bad Times (try to do … the best I can) 1973 1975 1976 1977 1978 1979 1980 Music Industry Revenue (in billions) 1981 1982 1984 1985 1986 1987 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2001 2003 2004 2006 2008 2009 2010 2011 2012 2013 2015

Coming Back to Life

Coming Back to Life 46% 46% DIGITAL PHYSICAL 8% PERFORMANCE RIGHTS SOURCE: IFPI. 2014 figures

Coming Back to Life 46% 46% DIGITAL PHYSICAL 8% PERFORMANCE RIGHTS SOURCE: IFPI. 2014 figures

What is Spotify? Baby don’t hurt me.. History of Spotify • Launched in 2008 in Sweden • Founded by Daniel Ek (former CEO of uTorrent) • Present in 60 countries • On-demand music streaming service with personalized recommendations and playlists Spotify now • Spotify has 40m subscribers for their premium service and 60m “freemium” users • As of 2015, its revenue is close to $2 bn. • 90% from subscriptions • 10% from advertisements

Challenges “Livin’ on a Prayer”

It’s the eye of the tiger…

.. rising up to the challenge of our rivals

Artists in Flux

Sustainable Growth? 1945 Net Loss Revenue 1082 747 430 188 73.9 -28.5 -45.4 -57.8 -86.7 -162.3 -173.1 2010 2011 2012 2013 2014 2015

The New Streaming Industry “I will Survive”

Highly competitive industry

Navigating the landscape Competitive Driver Performance Market Organization Advantage Industry Activity Position Profitability Stable Long-Term Structure System Resource- VRIN Long-Term Resource Changing Long-Term Based View Resource Dominance Portfolio Short-Term Game Theory Right Moves Oligopoly N/A Short-Term win Complex Complexity Edge of Growing Growth Adaptive Unpredictable Theory Chaos Uncertainty System Institutional Viable Niche Survival Nascent Fluid Unknown Structure

Navigating the landscape Competitive Driver Performance Market Organization Advantage Industry Activity Position Profitability Stable Long-Term Structure System Resource- VRIN Long-Term Resource Changing Long-Term Based View Resource Dominance Portfolio Short-Term Game Theory Right Moves Oligopoly N/A Short-Term win Complex Complexity Edge of Growing Growth Adaptive Unpredictable Theory Chaos Uncertainty System Institutional Viable Niche Survival Nascent Fluid Unknown Structure

Navigating the landscape Competitive Driver Performance Market Organization Advantage Industry Activity Position Profitability Stable Long-Term Structure System Resource- VRIN Long-Term Resource Changing Long-Term Based View Resource Dominance Portfolio Short-Term Game Theory Right Moves Oligopoly N/A Short-Term win Complex Complexity Edge of Growing Growth Adaptive Unpredictable Theory Chaos Uncertainty System Institutional Viable Niche Survival Nascent Fluid Unknown Structure

Navigating the landscape Competitive Driver Performance Market Organization Advantage Industry Activity Position Profitability Stable Long-Term Structure System Resource- VRIN Long-Term Resource Changing Long-Term Based View Resource Dominance Portfolio Short-Term Game Theory Right Moves Oligopoly N/A Short-Term win Complex Complexity Edge of Growing Growth Adaptive Unpredictable Theory Chaos Uncertainty System Institutional Viable Niche Survival Nascent Fluid Unknown Structure

What resources do they have now? “Got the moves like jagger”

VRIN Analysis Non- Valuable Rare Inimitable substitutable Music Apple, Amazon, Google now all have ~40 million tracks Catalogue Relation with labels Curation system User data

VRIN Analysis Non- Valuable Rare Inimitable substitutable Music Apple, Amazon, Google now all have ~40 million tracks Catalogue 55% revenue split with labels, Apple Music 58%, Rdio 60% now dead, Relation with Pandora struggling labels Curation system User data https://www.cnet.com/news/spotify-negotiating-to-pay-less-to-record-labels-report-says/

VRIN Analysis Non- Valuable Rare Inimitable substitutable Music Catalogue Relation with labels Expert-curated Beat Radio – Curation system Apple Music User data

VRIN Analysis Non- Valuable Rare Inimitable substitutable Music Catalogue Relation with labels Curation system User data

VRIN Analysis • ~2 hour personalised playlists Discover Weekly • Updated every Monday morning Nearly 5 billion tracks streamed • since July 2015 Over 8,000 artists for whom 50% • of listeners from Discover Weekly 42% of listeners use Discover • Weekly first thing in the morning https://news.spotify.com/us/2016/05/25/discover-weekly-reaches-nearly-5-billion-tracks-streamed-since-launch/

Quit Playing Game Theory with my heart Step 2 Step 1 Explore all interdependencies Identifying elements of the between players in the game game which can be changed Customers • Players • Added Value • Rules Company Substitutors Complementors • Tactics • Scope Suppliers Value Net Map Elements of the game

Using Game Theory to win End Consumer Customers Audio Hardware Music Streaming Music Ticketing Music Substitutors Company Complementors Download OS Providers Free Music Suppliers Physical Music Labels/Artists Server Infra. Ad. platforms

Using Game Theory to win • Complementors and End Consumer Substitutors are the same! Customers Audio Hardware Music Streaming Music Ticketing Music Substitutors Company Complementors Download OS Providers Free Music Suppliers Physical Music Labels/Artists Supplier relationships can • get disrupted Server Infra. Ad. platforms

Game Theory meets Simple Rules… Be the Complete Music Experience Rule #1 Moves Spotify has played Consequence Partner with Audio Harman and Spotify Team Up to Streaming Audio Change complementor • • Hardware Players Sony incorporates Spotify into PS 3 and PS 4 relationships in the game • • BandPage partnership to Help Musicians sell directly to One-Stop Shop for Music Change the scope and added • fans Fans value in the game • Ticketmaster partnership for concert recommendations Be the Music Partner for • Starbucks and Spotify Redefine Retail Experience Change customers in the game • any Business • Tinder Teams Up with Spotify

Game Theory meets Simple Rules… Experiment. Move Faster than the Rest Rule #2 Moves Spotify has played Consequence Spotify eyes Asia expansion with Indonesia launch Be the first mover and “lock-in” • • Expand! Expand! Expand! Spotify Expands Into Taiwan, Argentina customers • • Students in US need to pay only half for Spotify Change the pricing rules of the • Break Pricing Rules premium game • Get 3 months of Spotify Premium for just $0.99 'Thanks 2016, it's been weird,‘ : Spotify’s ad campaign • Change the marketing rules of • Redefine Marketing Rules Spotify launches with a famous social marketing • the game initiative New Experimental Change the scope of the game Partnership with Genius for song lyrics • • Become a verb Products Spotify for podcasts, TV shows, Original Content • •

Game Theory meets Simple Rules… Leverage Data Rule #3 Moves Spotify has played Consequence 'Thanks 2016, it's been weird,‘ : Spotify’s ad campaign • Better Advertising Becoming more profitable • Share user data for targeted ads • Opens the door for exclusive complementors • Launch of Spotify Insights Creating complementors • (developers etc.) with the Insights API Increasing switching costs for • Intelligent Recommendations • Become a Verb customers • Bringing new content to the platform for use

Our Recommendations – Come Together • Change rights ownership game • Become the music ecosystem • Probe mature markets

Thank You for listening! Questions?