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Spotify and Transformation of Music Business

In 2008, two-thirds of the music industry's revenue came from physical product sales (mainly CDs), and around 30% was generated from digital downloads (iTunes sales). In 2019, streaming made up around 2/3rd of the revenue, and digital downloads and physical products generate only 15 percent (Krueger, 2019, p. 188). Streaming services have transformed the music industry's revenue sources, as platforms such as Spotify, Google Play, Amazon, and YouTube have transformed the nature of the music experience from a durable commodity to a leasing or service market. Streaming has also expanded the time people spend on music listening, reduced piracy levels, and made music listening a convenient and affordable service for its audience. Therefore, streaming is the latest technology surge in the music industry, as it will make listeners discard their old devices and develop new habits for their music listening experience (Krueger, 2019, p. 187-188).

Spotify and Fairness

The existence of Spotify depends upon the 'Big Three' of the music industry – Sony, Universal, and Warner, as licensing deals with these corporations to provide the majority of their content. These three music corporations have become part owners in exchange for their music licenses, which makes discussing fair remuneration for artists, other record labels, and songwriters a complex challenge (Eriksson et al., 2019, 45-60). Since Spotify is leasing products undervalued from their partners, the prices of other non-major labels are controlled due to economies of scale based on their proportional revenue model. Simultaneously, Spotify sells its subscription at a high process and drives up the costs for advertisers, and the revenue margins increase with every stream. Therefore, Spotify's arbitrage trade seems unfair for the artists, and the pro-rata revenue model is designed to favor the leading music brands and artists (Eriksson et al., 2019, p. 155-166).

Spotify Business Model and Listening Experience

Spotify uses the pro-rata business model for distributing the revenues generated from streaming and advertising services by providing each artist with the percentage of approved track plays per artist. For instance, if Beyoncé's track made up 1 percent of the total approved track plays on Spotify, she would receive 1 percent of the revenues. Therefore, on Spotify, the catalog size, popularity, and catalog ownership become relevant for artists. The pro-rata revenue system is designed to favor significant label artists and undervalue indie music artists. Also, the listeners have to deal with the presence of several advertisers on the platform, which often leads to complaints in the form of repetitiveness, frequency, and loudness of the advertisements. In many cases, listeners complain that the ads are shown to customers without considering their needs or without a proper ad targeting mechanism (Eriksson et al., 2019, p. 194).

Spotify and Big Data

Spotify is one of the leading corporations in terms of its dependence on Big Data, as they employ knowledge from Big Data from different aspects of their business. On a daily basis, Spotify customers are creating 600 GB of data, which they analyze to perfect its machine learning and algorithms to extrapolate insights and improve customer experiences. Also, Spotify crawls the web for searching related blog posts and text about their platform to analyzing the opinion of customers on the artists and music on their platform. Some of the data outputs that Spotify uses for creating value for its customers are in the form of recommended playlists and a customized discover tab. Spotify offers its customers an opportunity to listen to music that has been curated based on their algorithm and their listening habits through recommended playlists. In the discover tab, Spotify users can locate a fresh playlist after two hours of waiting for Discover Weekly (HBS, 2018).

Impact of Spotify on Streaming

Increase in Total Consumption

Streaming services of Spotify have led to a substantial rise in the variety, quantity, the discovery of new artists, and track playbacks of new content. Also, there has been a large decline in the concentration of track playbacks. Since customers are spending more time on Spotify, the platform has become more attractive for advertisers who search for engaged viewers to place their advertisements. Spotify has expanded the attention span of consumers to help reach a more comprehensive collection of artists, which potentially increases the need for similar goods such as live performances. Spotify has efficiently delivered and disseminated the consumption capital for the music industry, as listeners can share their consumption experiences with friends through the platform. Spotify users can follow their favorite artists, buy merchandise, and receive updates on artist or band tour dates. In exchange, artists can target their listeners by tracking their streaming habits, location, and demographics using Fan Insights on Spotify (Datta et al., 2017, p. 1-63).

Reduction in Piracy

Spotify has also played an essential role in reducing music piracy, as the rise in affordable streaming and access to a comprehensive collection of music catalog reduced the vacuum exploited by counterfeit sites such as Pirate Bay. With the Spotify platform, customers can access millions of songs and artists with their ad-free platform for $9.99. The music industry's rise of streaming services has regained control over their economics after a few years of instability. According to a Digital Media Association report, music piracy has been reduced by around 50 percent since 2018 (Yönak, 2019). Thus, Spotify and other streaming sites have been credited for saving the music industry from their piracy crisis.

Discovery of New Music, Genres, and Artists

With features such as 'Discover Weekly,' listeners have suggestions to experience music from similar artists curated for existing music playing habits. Also, 'song radio' suggestions are reminiscent of building a playlist of different artists, as listeners can add new songs to their digital library. Spotify's platform encourages listeners to engage with their content, as it provides access to music for different moods, special occasions, and soundtracks for different activities. Since the non-mainstream music catalog is available on Spotify and the number of indie artists is increased, the flexibility in listening habits of customers witnesses an increase over time. Also, Spotify makes it easier for listeners to find new artists, as the platform does not bind them to one genre. Thus, due to Spotify, music generification and subculture days seem to be behind music lovers (Yönak, 2019). In combination, these new experiences are helping to grow the music industry in terms of the width of genres and audience for all of them.


An essential feature of Spotify that cannot be overlooked by the music industry is the customizable playlists, as features such as 'Daily Mix' help them tailor music for individual listeners. Thus, the most listened to genres and songs are highlighted to listeners, which creates a positive image of the most successful artists and catalog on their platform. Spotify runs an iconic annual marketing campaign, which promotes its playlists and uses its users' listening habits. The music industry can use the data when they are developing new music and marketing their artists to customers. The desktop interaction on Spotify has transformed in the past decade, as user interaction has been organized around search options, tracks, and community-activated features. The interaction design of Spotify reorganizes consumption patterns around the feelings, behaviors, and moods of their audience (Yönak, 2019).

Monopoly of Labels

One of the music industry's concerns related to Spotify and streaming platforms has been the development of monopolies by influential music labels, especially Sony, Warner, and Universal, who own a stake in the streaming platform. Thus, Spotify has taken over activities traditionally provided by music labels, which means the labels with a controlling stake in Spotify can exert power on the streaming platform. A leak of the contract between Spotify and Sony revealed that the music label was provided a favored nation clause that forced Spotify to provide them the best deal offered to any other music label. In the end, the monopoly developed by music labels on Spotify is reminiscent of the blockbuster strategy that they follow on promoting their leading artists (Datta et al., 2017, p. 1-63).

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Takeaways on Perspectives

From the artists' perspective, the Spotify revenue model and platform are designed to favor the famous artists, more extensive catalog of tracks, and artists linked to leading music labels. Therefore, indie artists and artists linked to other recording labels are at a disadvantage, as they have a smaller percentage of total approved track playbacks in Spotify. In the end, the system creates inequalities between artists based on their popularity and provides new artists with an opportunity to explore listeners. From fans' perspective, they can gain access to an extensive catalog of music from leading music labels. However, Spotify is also pushing repetitive and loud ads to its customers, which are not based on targeting, and the objective is to increase the ad views for its clients. Finally, streaming has saved them from the risk of privacy from the music industry's perspective and provided greater consumption from its customers. Finally, the music industry has gained in the form of another source of revenue, and new genres and artists have gained access to potential customers through the Spotify platform.


  1. Datta,H., Knox,G., & Bronnenberg,B.J. (2017). Changing their tune: How consumers' adoption of online streaming affects music consumption and discovery. SSRN Electronic Journal, 1-63.
  2. Eriksson,M., Fleischer,R., Johansson,A., Snickars,P., & Vonderau,P. (2019).Spotify Teardown: Inside the black box of streaming music. MIT Press.
  3. HBS. (2018, April 8). Spotify may know you better than you realize. RetrievedDecember22, 2020, from
  4. Krueger,A. (2019). Rockonomics: What the music industry can teach us about economics (and our future). Hachette UK.
  5. Yönak,R. (2019, February 11).How Spotify has changed the way we listen to music. Audioxide. RetrievedDecember22, 2020, from
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