For the mid-term exam, please choose between Case 9 on Spotify and Case 10 on Beyond Meat.
Please update the case to July 2023 with some additional research. Both firms are publicly traded.
I'll expect you to apply at least one analytical framework from each of chapters 1-5 to elucidate the business situation.
Please use the table of contents to state which frameworks you will apply.
Quantitative financial analysis is expected and does not count as a framework.
Then the ultimate question in strategy is "what should the CEO do, and why?" Three to five recommendations would be good.
The page limit will be 12 pages, not including cover page, table of contents, and references.
Turnitin will be on. I will deduct points for Turnitin scores over single digits.
Spotify in 2020: Can the Company Remain Competitive? Copyright ©2021 by Diana R. Garza. All rights reserved. Diana R. Garza University of the Incarnate Word Before streaming music, many consumers may have been using file sharing services Napster, LimeWire, Pirate Bay, and other companies to download music. Using these services, cost the music industry billions each year by downloading and redistributing music (what we know as music piracy and, in legal terms, copyright infringement). According to the Recording Industry Association of America (RIAA), piracy of recorded music has cost the recording industry billions in lost revenues and profits (2020). It is estimated that the U.S. economy loses $12.5 billion in total output as a consequence of music theft, and approximately 71,000 jobs in the U.S. economy are lost. Daniel Ek, one of the two founders of Spotify, has not only transformed himself in the last 14 years, his transformation is also reflective of his beloved offspring—the world’s fasted growing streaming music service—Spotify. Ek and Spotify came to revolutionize the music industry, Daniel Ek knows well that to remain competitive, the company needs to differentiate its products and services. In the race to remain competitive, Spotify paid more than $340 million just in the past year acquiring podcast companies. Streaming services and the subscription market will continue to grow from approximately $8 billion in 2019 to over $17 billion by 2024. Spotify has entered a race where the pace is quickening with Spotify’s average monthly users growing faster over the last three quarters but also other music services adding podcasts and retooling themselves to remain strong rivals. Spotify’s growth strategies include an ad-based business model allowing for both a free and paid subscription, global expansion into different markets exponentially growing its number of subscribers, multiple acquisitions that add new competencies and capabilities, and brand-name partnerships with industry leaders such as Disney, Xbox, and Samsung among others. Spotify’s ongoing transformation is based on the rapid adoption of streaming music and subscription services and its leverage with smartphones, tablets, smart TVs, and high-speed internet access. As early as 2015, digital streaming became the primary revenue stream for recorded music, surpassing physical format sales of CDs. Spotify knows its user’s preferences perhaps better than subscribers themselves. The company relies on its analytical capabilities to create a competitive advantage. Through the use of analysis, machine learning algorithms, and its vast amounts of data, subscribers are presented with personalized playlists and other recommendations. The use of AI has also created value for artists allowing them to understand and visualize (through Spotify graphs) user engagement, monthly/daily listeners, metrics, and demographic details. An added advantage of using data analytics is being able to customize specific ads to different regions. Company History Founded in 2006, Spotify took the streaming music industry by surprise with its unprecedented growth in the last six years. Daniel Ek and Martin Lorentzon founded Spotify as a small startup in Stockholm, Sweden. Their startup music platform was in response to a growing piracy problem in the music industry. Ek and Loretzon knew there had to be a page C-113better way for artists to monetize their music and give consumers a legitimate and simpler way to listen to music. In 2008, Spotify transformed music listening when it launched its streaming service, offering listeners access to a library of music rather than making users pay for downloading albums or tracks. The music industry, which had been suffering from spending declines, resisted this new business model of offering “unlimited access,” and favored the current digital download model used by Apple iTunes. Spotify began by offering its free subscription by invitation only as a way to manage growth; paid subscriptions were open to everyone. At the same time, Spotify also announced licensing deals with music labels. In early 2009, Spotify opened its free registration tier to the public in the United Kingdom only. Due to a surge in registrations following the Spotify mobile app’s release, Spotify closed its open registration in late 2009 and returned to invitation only. In 2010, Spotify integrated with Shazam to figure out who was singing a particular song and would then populate a playlist. Spotify was launched in the United States in July 2011, allowing users a six-month free ad-supported trial period to listen to unlimited music. By 2012, the trial period expired, and users were limited to ten hours of music each month and five-song replays. By March of 2012, Spotify removed all limits and introduced its free ad-supported tier. In 2014, Spotify pushed its two-sided business model by offering a free ad-supported service to attract new users with the goal of converting them into paid subscribers. The company was able to convert 10 million users to premium subscribers from its approximately 40 million active users. At about the same time, music artist Taylor Swift pulled her music off Spotify, claiming a rapid decline in sales. In 2017, the company announced expansion plans to move to the United States in lower Manhattan, New York City, adding approximately 1,000 jobs. In November 2018, Spotify announced a total of 13 new markets in the MENA region (the Middle East and North Africa), including a new Arabic hub and several playlists. Spotify’s success has also seen a few bumps along the way. Taylor Swift was one of the first artists to speak out against the company and its unfair compensation to artists, calling the music platform an “experiment.” Three years later, the feud between Spotify and Taylor Swift ended, and the artist put her music back on the platform. Jay Z, a hip-hop music mogul, also claimed unfair compensation to artists and launched Tidal in 2016 as his own music platform, becoming Spotify’s competitor. Other artists who kept their music off Spotify included The Beatles, Adele, and Pink Floyd. Growth Year by Year By March of 2011, Spotify had a customer base of 1 million paid subscribers across Europe, and by the end of September of 2011, the number had doubled. By August of 2012, the company reported 15 million active users, of which 4 million were paid subscribers. By 2013, the company reported 20 million active users with one million customers in the United States. The growth for Spotify has been exponential year after year reaching 286 million users, this includes 130 million subscribers across 79 markets, with 50+ million tracks, 1 million+ podcast titles, and 4 billion+ playlists as of March 2020. IPOs Are Too Expensive and Cumbersome On February 28, 2018, Spotify filed a Direct Public Offering with the SEC. Barry McCarthy, Chief Financial Officer of Spotify, stated in an interview with the Financial Times that the company opted for a Direct Public Offering (DPO), also known as a direct listing instead of an IPO because “the U.S. initial public offering market is broken.” A DPO is a way for companies to become public without a bank-backed initial public offering. Spotify opted for what they called a free-market approach by selling shares directly to the public without paying an underwriter. The financial benefits for Spotify were savings in underwriter fees and avoiding the IPO discount. Growth through Acquisitions Spotify has strengthened their competitive position through a series of targeted and timely acquisitions. Each acquisition has resulted in a stronger competitive position and new market opportunities. A list of Spotify’s acquisitions between 2013 and 2020 are presented in Exhibit 1. EXHIBIT 1 Spotify’s Acquisitions between 2013 and 2020 CompanyYearCompany Business Tunigo2013Users find, create, and share music and playlists. The Echo Nest2014Music intelligence and data platform company develops music applications. Seed Scientific2015Data science consulting firm Crowd Album2015Company collects photos and videos of performances. Cord Project2016Social messaging and sharing Soundwave2016Social app focused on finding and sharing music Preact2016Cloud-based service focused on helping companies acquire and retain subscribers. Sonalytic2017Audio detection technology company MIghtyTV2017Company provides video recommendations MediaChain Labs2017Company focused on leveraging blockchain technology to solve problems with attribution. Niland2017Company provides search and recommendation options for music. Soundtrap2017Online Music Studio Loudr2018A music licensing platform Gimlet2019Podcast Network Parcast2019Podcast Network Anchor2019Podcast Network SoundBetter2019Music and Audio production and collaboration marketplace. The Ringer2020Sports and Entertainment Podcast Source: Businesswire–https://www.businesswire.com/portal/site/home/. 2014–2016. In March 2014, Spotify acquired The Echo Nest. The Echo Nest was a music intelligence and data platform for developers and media companies. The company developed and personalized music page C-114applications. In June 2015, Spotify also acquired Seed Scientific, a data science consulting firm, to lead an advanced analytics unit within the company. CrowdAlbum, a startup that collected photos and videos of performances and shared them on social media, was acquired in 2016. The work created by CrowdAlbum would enhance and tighten the connection between artists and their fans. In 2016, Spotify acquired Cord Project and Soundwave, these companies focused on messaging and sharing. These acquisitions would allow users to share new music, build profiles, and message friends and followers without leaving the Spotify app. Preact was the last acquisition of 2016. Preact was acquired to find trends and behavior patterns through machine learning and analytics to grow the premium customer base. 2017. In March 2017, Spotify acquired Sonalytic. Sonalytic was an audio detection technology that identified songs, mixed content, and audio clips and tracked copyright-protected materials. This acquisition improved the company’s personalized playlists and the company’s publishing data system. MightyTV was a startup company focusing on video recommendations. The company was acquired and shut down. As part of the deal, MightyTV’s founder and CEO Brian Adams became Spotify’s VP of Technology, focusing on marketing and advertising. In the same year, Spotify acquired MediaChain, a startup that focused on leveraging blockchain technology. The goal for this company was to develop technology to connect artists and other rights holders with the tracks hosted on Spotify’s service. Niland was Spotify’s fourth acquisition of 2017. Niland was an A.I. company focused on providing personalized recommendations for users. SoundTrap, an online music studio startup, was Spotify’s last acquisition of 2017. SoundTrap, was the maker of the freemium (paid and free) cloud-based, collaborative music podcast recording studio. Spotify’s plans for the company were to assist artists by using its platform, including offering real-time streaming data through a mobile app. 2018–2019. In 2018, Spotify acquired Loudr, a music licensing platform that built products and services for content creators and digital music services to identify, track, and pay royalties to music publishers providing a more transparent and efficient music publishing industry. In 2019, Spotify acquired the podcast networks Gimlet Media and Anchor FM Inc., establishing itself as a significant player in podcasting. Gimlet added its best-in-class podcast studio, production, and advertising capabilities. Anchor added its platform of tools for podcast creators. Later that year, Spotify also acquired Parcast, a podcast that specializes in crime, mystery, and science fiction shows. Parcast added its curated library of highly produced page C-115shows and its loyal audiences. To round off the year, the company acquired SoundBetter, a music production marketplace where people in the music industry collaborate on projects and distribute music tracks for licensing. SoundBetter brought with it a strong reputation and committment to support all creators worldwide; the company joined Spotify with 180,000 registered users in 176 countries. 2020. Spotify’s latest acquisition was Bill Simmon’s The Ringer in February 2020. The Ringer was a creator of sports, entertainment, and pop culture content. The addition of The Ringer expanded Spotify’s content offering and audience reach. This acquisition is one more example of Spotify’s growth strategy. Growth through Partnerships Spotify’s Partnerships have also strengthened the company’s competitive position by expanding its market access and strategic collaborations mostly through bundling of services. A list of Spotify’s partnerships between 2011 and 2020 are presented in Exhibit 2. EXHIBIT 2 Spotify’s Partnerships between 2011–2020 CompanyYearCompany Collaboration Scope Facebook2011Integrated into the Facebook page, users can listen simultaneously with friends. Shazam2011Leading mobile discovery company SoundHound2011Sound and discovery search company Coca-Cola2012Global partnership to share music with consumers around the world. Harman2014Premium global audio and Infotainment group. BandPage2014Artists and groups engage directly with fans Sony2015Added to Sony PlayStation 3 & 4 and Xperia Consoles Starbucks2015Integrated into Starbucks App Uber2014Riders can listen to their playlists while riding in an Uber Adidas2015Integrated into the Adidas Go app where streaming music was fused with fitness metrics. Tencent2017Spotify and Tencent acquired shares from each other Microsoft2017Provide access to streaming music South by Southwest2017Access to SXSW genre-specific curated playlists on Spotify hub Waze2017Users can access Spotify playlists from Waze navigation WNYC Studios2017Podcast available through Spotify Discord2018Users can highlight and share music Hulu2018Premium bundle of music and TV Ellen DeGeneres2018Create opportunities for undiscovered talent Samsung2019Spotify preinstalled in new Samsung devices AT&T2019Collaboration allows AT&T Unlimited & More customers to choose Spotify Premium as an entertainment option. Xbox2019Spotify can be played in the background while playing videogames Bouygues Telecom2019In France, Spotify and Bouygues offered a six month free trial for customers of Bouygues. Magalu Conecta2019Brazilian customers of Magalu Conecta were offered a free four-month trial of Spotify premium. Vodafone2019Eligible Vodafone Australian users received a free 30-day trial of Spotify premium added to their mobile plan. Disney2019Disney Playlists on Spotify aimed at boosting family memberships ESPN2020Spotify created music and podcast playlists for viewers to watch after The Last Dance docuseries of former Chicago Bulls player Michael Jordan. The Joe Rogan Experience2020Popular podcasts in diverse topics such as neuroscience, sports, comedy, health, and ever-changing culture. Source: Various Spotify press releases. https://www.businesswire.com/portal/site/home/. page C-116 2014–2015. Spotify’s partnership with Uber started in 2014. Riders were allowed to control the driver’s sound system by connecting to their Spotify accounts and streaming their tunes while riding in an Uber. In 2017, Spotify considered ending its partnership with Uber after mounting scandals concerning Uber’s CEO. Also, in 2014, Spotify joined