Spotify: The sound of streaming

A round black thin disc with circular grooves was avant-garde in the 1940s. Placed on a bulky instrument called the phonograph, it would magically play music for a few swaying generations. Vinyl records were trendy then. Today, they’re quaint at best. And archaic, in truth. Over the last few decades, technology has changed all aspects of the music industry, including how people listen to it. You hardly play music anymore, for instance. You stream it. At the forefront of this streaming revolution is a Swedish company you know of as Spotify.

Since it was set up in 2006 by entrepreneurs Daniel Ek and Martin Lorentzon to combat the growing problem of piracy in the music industry, it has grown to become the leading player in the global streaming industry, with 345 million users and 155 million paying subscribers across 178 markets.

In the Indian market, too, which has around 10 players, Spotify has managed to hold the third spot behind Gaana and JioSaavn, according to a Kantar-Vtion study. What is more remarkable is that it has achieved this in just two years. In fact, by the time Spotify entered the country in February 2019, Indians had already warmed up to music streaming services like JioSaavn, Wynk, and Gaana. But the late entry has proved to be “more of a boon”, says Spotify’s India MD Amarjit Singh Batra. “I would call it the late mover advantage because we’ve been able to see what’s working and what’s not,” he points out. “We’ve learnt that what we thought was a mature market… is not yet mature enough. We’re educating people about streaming and that is something nobody invested enough in while the market was expanding.”

The “homework” the company had done before launching in India has paid off. As Gustav Gyllenhammar, vice president, markets and subscriber growth at Spotify Worldwide, puts it: “We knew that we needed to provide something differentiated and really tailored to the market in order to win. There were already a lot of local as well as global players but we needed to provide something that was more global than the local players as well as more local than the global players.”

So as with all the other markets that it operates in—including the 80 new markets it plans to enter this year—Spotify put localisation at the core of its strategy to make headway in a short span of time. Consider that of the 36 new languages that it recently launched in, 12 are Indian. These are Hindi, Gujarati, Bhojpuri, Kannada, Malayalam, Marathi, Odia, Punjabi, Tamil, Telugu, Urdu, and Bengali.

The proof of success is in the numbers. In its latest letter to shareholders, Spotify said, “In Q4, we added 25 million MAUs (monthly active users) and benefited from faster growth in India, the U.S., and Western Europe, with India serving as a notable source of upside vs. our forecast, driven by successful marketing campaigns.”

Gyllenhammar’s strategy of being both accessible and aspirational is evident in Spotify’s freemium service which is a combination of free (supported by ads) and premium (or fully paid by the subscribers) as well as in a variety of subscription packs for different sets of audiences. There are over 15 plans, including mobileonly, annual, mini, weekly, and daily plans—and India is the only country to have such a differentiated offering. It also provides Spotify Lite to customers with unreliable Internet connectivity, helping it penetrate deeper into tier 2 and 3 cities.

Experts believe that the company has hit the right spot in terms of a product-market fit. “Spotify is the highest growth player compared to any other player in the market,” says Nikhil Dalal, senior consultant, RedSeer. “It has successfully targeted people who are between 20 years and 25 years, who happen to be the heavy users of the Internet in the country. Their recommendation engine, too, is one of the strongest so far.” As Gyllenhammar puts it, “One of the things we’re proud of is how we’ve been able to combine algorithmic experience with editorial experiences.”

The country is certainly ‘listening’. Within a week of its India launch, Spotify managed to garner one million unique listeners. Meanwhile, global competitor YouTube Music, which entered the country within a month of Spotify, said it hit a 3-million-downloads record in the first week. According to data firm Statista, the Indian music streaming market will be worth $663 million in 2021 and jump to $1.1 billion by 2025 at a CAGR of 14.2%.

That’s the size of the opportunity, and also the reason why players like Spotify are ramping up their regional play. After all, “India is not one market,” says Gyllenhammar. “It’s a vast region with cultures and languages and different socio-economic realities and we need to invest in a way that… even if we start by mostly winning the big cities, we need to rapidly follow on by winning the tier 2 cities.”

Both international as well as homegrown players know that regional music, which comprises 39% of all streams, is the way to win. For Times Internet-owned Gaana, a decade-old music streaming service, regional music contributes over 35% of total consumption. “We have seen more than 30x growth in absolute consumption in the last three years, and we will continue to focus on smaller cities and towns for wider adoption,” Gautam Sinha, CEO, Times Internet, says. “While we have concentrated on tier 2 and 3 markets in 2020, we aim to set foot into tier 4 markets and increase our footprint over the next five years.”

The largely advertising-driven audio OTT businesses are looking at other forms of monetisation, and one of the avenues they have chosen is podcasts. “Podcasts are the perfect storytelling medium, and our streaming numbers clearly point to its rising popularity. It’s a matter of time before branded podcasts become a rage,” Sinha says. Gaana podcasts have increased 2x in the second half of 2020 after it partnered with global players Libsyn and Triton Digital to expand its podcast library of 15,000 shows.