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Economics and the Business World Course Work Assessment Spotify achieved a major milestone March 2011 reached 1 millionth paying customer 6 million signed free services firmly establishing largest online music services world.
Economics and the business world
Threat of new entrants
Bargaining power of consumers
Bargaining power of suppliers
Threat of substitute products
Spotify and Virgin Media partnership and the benefits of online distributed music
Spotify is officially on of the largest music services providers of the globe, having reached a total of 1 million paying customers, and 6 million free subscriptions. The future of the company and the interest it raises from investors are however pegged to more complex issues than the number of customers. It is for instance important to assess the industry in which the company activates, the nature of competition, the potential for partnerships or the benefits of music services. Each of these issues is addressed below.
1. PESTLE analysis
Conduct a PESTLE analysis that will identify the main environmental forces that are affecting Spotify. Within your analysis you should emphasize the forces that will be particular drivers for change in the future of the company and provide justification for your choice
The analysis of the industry in which Spotify operates is best completed with the aid of the PESTLE framework, which addresses issues such as the role and impact of the political, economic or technological fields upon the current and future evolution of Spotify. The lines below approach all the components in the PESTLE framework and review their importance for Spotify.
The political climate is rather tense at this time and this is due to the emergence of the internationalised economic crisis, the difficulty in overcoming it or the adjacent threats it poses. In this setting, the politics of music distribution and online consumption could be influenced in the future by additional tensions or pressures within the political field.
More than the actual distribution of music, the political climate impacts the actual creation of music. In some political regimes, music -- as well as any other form of art -- is censored. In other words, music is about the regimes and its features, such as poverty or corruption. In other words, politics influences the creation of music (Burkart, 2010).
From an economic standpoint, the music industry is mostly influenced by the state of the general economy within a country or even the globe. Times of economic contraction would decrease the disposable income of consumers and could even impact on the amounts of money spend on music consumption. In other words, music is sensitive to the state of the economy and the distribution of music is a complex process, raising both economic as well as ethical concerns (Sean, 2000). Economic issues include for instance payment agreements and models, copyright issues or the development of new products to continually attract the customers (English).
At a socio-cultural level, more and more pressure is exerted by the public on the economic agents, including online music vendors such as Spotify. The public raises more demands and, to respond to them and remain competitive, economic agents have to devise new strategies and implement new resources. This field is expected to generate new challenges in the future.
At the level of technology, this evolves continually and at a rapid pace. The impact upon the music industry is that of new opportunities to more efficiently distribute the music, but also additional challenges to keeping up with the developments (Finney and Burnard, 2009).
From a legal standpoint, the distribution of music and its consumption are highly sensitive to changing legislations. While the political regime would influence more on music creation, the legislative field will focus more on the distribution and consumption of music. Laws can allow music to be played, used and consumed.
"From the imposition of quotas to the generation of subsidies, states may affect whether indigenous music fails or flourishes. These interventions form part of the larger continuum, along which are mapped such issues as copyright law, education curriculum and broadcasting policy, all of which have an impact on popular music" (Shepherd, 2003).
Finally, from an environmental standpoint, it is noted that the public places more and more emphasis on the protection of the environment. Buyers care more for products which are recyclable, reusable or which have been created with the least possible damage upon the environment (Page and Proops, 2003). The music services offered by Spotify and other such similar firms is more environmentally friendly as it uses fewer traditional support material, such as compact discs, cassettes and other such. In other words, the future of online distributed music appears as flourishing and this is due to the fact that it is more eco-friendly (Grillo, 2011).
2. Competitive analysis
Analyse the nature of competition in the industry that Spotify faces using Porter's Five Forces framework.
The competitive analysis of the music industry is best assessed through the lenses of Porter's five forces framework, as revealed below:
Threat of new entrants
The threat of new entrants is of a medium intensity and this is due to the relatively low costs of production, especially common in the online distribution of music. In this setting, groups and individuals would easily be tempted and able to penetrate the industry. The result is then that of numerous firms penetrating the industry and generating additional competition (Raktabutr, 2006).
Bargaining power of consumers
The bargaining power of consumers is fairly high within the music industry and this is best explained by the fact that there are numerous channels to accessing music, including various online solutions, specialised stores or even retail facilities. Supermarkets are for instance an important source of music purchases (Music Recording Industry). In this setting then, it is up to the consumers to decide what channel to use in the acquisition of music and this bargaining power intensifies the competition among distributors.
Bargaining power of suppliers
Within the music industry, the suppliers are generally represented by the artists and/or their managers. These have a high bargaining power relative to the distributors, who are in dire need of music to sell. Also, the bargaining power of the suppliers is further increased by the fact that the propagation of the internet allows artists to directly sell their music through their own websites (Illangakoon). All in all then, the bargaining power of suppliers is high and this intensifies competition among distributors.
Threat of substitute products
The threat of substitute products within the music industry is quite difficult to assess for the simple reason that the tastes in music vary. In other words, it is up to each and every individual buyer as to whether or how they substitute music, and with which items. What is however notable is that an actual substitution of an artists or their songs is virtually impossible (Illangakoon). Such a feature then further intensifies competition among distributors.
Based on the analysis so far conducted, it becomes obvious that the competitive rivalry among the players in the music industry is intense. Distributors compete against each other to get the best music within the most efficient conditions and then to distribute it to end consumers.
3. Spotify and Virgin Media partnership and the benefits of online distributed music
Telecoms companies moving into the music space increases revenue streams to the music industry and provides benefits for fans and artists alike," said Andreas Liffgarden, Spotify's global head of telecom business development. • What is the strategic rationale for the partnership between Spotify and Virgin Media? And • Do you agree or disagree with Liffgarden's statement? Give your reasons why, reflecting on the perspectives of both music fans and artists.
In 2011, Spotify signed a strategic partnership agreement with Virgin Media, through which the two companies decided to join forces. At an initial stage, the customers of the two companies would receive six months free membership to the other firm, upon renewal of contracts. Specifically, when a Spotify member renews their membership, they would receive six months access to Virgin Media, and vice versa (BBC Online, 2011).
The strategic rationale for the decision to join forces is based on a multitude of components, two of the more relevant of them including:
The partnership between Spotify and Virgin Media would enhance the competitive position of Spotify within the music industry. This increased competitive position would help the company better face the challenges from new entrants, existent players, but most importantly, number one competitor, Apple iTunes Music Store.
The partnership between the two firms would allow them to further consolidate and improve their positions within the industry by creating a context in which they can access wider customer markets. In other words, upon the signing of the partnership, Spotify gained full access to the market share and customer palette of Virgin Media.
Aside from the strategic reasoning of the partnership, the collaboration between Spotify and Virgin Media is also beneficial for…[continue]
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