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10 Sep 2020

How does Spotify Make money? We'll explain!

other How does Spotify Make money? We'll explain!

Spotify is a music platform, which provides users an on-demand streaming service. The service contains a catalogue of music, licensed through multiple record labels. In addition, users are able to create and share playlists with other users.
The mission statement of the music-streaming company is as follows:

“Our mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by these creators.” 

The business model of Spotify is based on the mission statement. Its streaming services are monetized by both premium subscriptions and advertising, officially referred to as the premium service segment or advertising-financed service. The majority of Spotify's revenues come from its premium service, which offers ad-free streaming of music to paying subscribers online and offline. Spotify aims to continue to generate revenue by retaining existing users, attracting new users and converting users from the ad-supported service to the premium service.

Premium subscribers

As Premium Subscribers, users are able to listen to Spotify's entire music catalogue without having to listen to commercials. Furthermore, users enjoy unlimited online as well as offline access to the music catalogue. Through the sale of various subscription pricing plans, Spotify is able to generate revenue from its Premiums Service segment.

Premium subscribers – Spotify for students

In 2019, Spotify counted over 124 million Premium Subscribers. Those subscribers were activated based on several marketing channels. The first marketing channel is the ad-supported service platform. Spotify convinced Non-Premium Subscribers to convert to Premium Subscribers. The second marketing channel is highlighting the critical features of the paid plans. By showing users the benefits of the Premium Service, Non-Premium Subscribers are willing to enjoy unlimited online and offline access to the music catalogue. Product links, campaigns targeting existing users, and performance marketing across leading social media platforms, such as TikTok or Instagram, were the third marketing channel.

Advertising

Users, who do not pay for the premium service are enjoying the access through Spotify's Ad- Supported Service. In contrast to the Premium Service, users have limited online access to the music catalogue. Besides, the users streaming experience is interrupted by advertisements. Through the sale of display, audio, and video advertising space on its non-premium streaming platform, Spotify is able to generate revenue from its Ad-Supported Service.
Revenues are primarily based on the number and hours of usage of Spotify Ad-Supported Users and their ability to offer innovative advertising products. A key element is the Spotify demographic segment, which consists primarily of users between the ages of 18 and 34, providing a massive opportunity for monetization through advertising.

In the US, Spotify offers the users three different plans. The free version offers you unlimited ad- supported streaming, only random song playback on cell phones, access to podcasts and videos. The web provides access to on-demand access.
The premium version for $9.99 (4.99 for students). It adds offline listening, removes advertising and mobile on-demand access (access to individual songs instead of just radios). The Premium plan also provides support for extreme quality soundtracks (320 kbps).

The family version for $14.99 gives you 6 accounts (from a single country), which effectively makes $2.5 per account. The limitation is that all family members must live at the same address. The family plan also provides support for soundtracks of extreme quality (320 kbps).

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