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Spotify As a Multi-‐Sided Market

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Spotify As a Multi-‐Sided Market University of Amsterdam Department of Media Studies Master New Media and Digital Culture Spotify as a Multi-Sided Market An analysis of the evolution of Spotify’s platform MA Thesis 2015-2016 New Media and Digital Culture Date: June 24, 2016 Supervisor: dr. A. Helmond Second reader: dr. E. Weltevrede Table of Contents 1. Introduction ....................................................................................................... 2 1.1 Digital Music ................................................................................................................................................. 3 1.2 Cloud Music Services ................................................................................................................................ 4 2. Music as a Service .............................................................................................. 6 2.1 Media Ecology and New Materialism ................................................................................................ 6 2.2 Digital Music, New Materialism and Music Streaming ............................................................... 8 3. Platform Studies .............................................................................................. 14 3.1 Conceptualisation, Origins and Critique ......................................................................................... 14 3.2 How Could Platforms Be Studied? .................................................................................................... 17 3.2.1 Historical Engagement With Platforms ..................................................................................... 17 3.2.2 Platforms As Multi-Sided Markets ................................................................................................ 19 3.2.3 Software Studies Perspectives ........................................................................................................ 23 4. Method ............................................................................................................ 28 5. The Evolution of Spotify’s Platform .................................................................. 30 5.1 Spotify as a Multi-Sided Market ......................................................................................................... 30 5.1.1 The Entry Phase .................................................................................................................................... 30 5.1.2 Expanding Strategies and Growth of Stakeholder Groups ................................................. 37 5.1.3 Demands of Content Providers and Tier Restrictions .......................................................... 43 5.1.4 The Politics of Spotify’s Platform ................................................................................................... 45 5.2 Affordances of Stakeholder Groups .................................................................................................. 48 5.2.1 Users ........................................................................................................................................................... 48 5.2.2 Developers ............................................................................................................................................... 50 Conclusion ........................................................................................................... 54 Bibliography ........................................................................................................ 56 1 1. Introduction Being a music lover, I discovered different ways to collect and listen to music. In my early years, I used the vinyl records from my parents, which resulted in my love for music. I had bought cassette tapes before I found ways to record them myself, I had bought CD’s before I found ways to burn them myself, and eventually I found ways to download music, though illegally, which helped to develop my present broad taste of music. Being a computer literate, the fact that all the music was available for me for free allowed for a deep dive in music discovery. I used illegal file-sharing services in order to cope with my demands until 2009, when I came across Spotify’s music-streaming service. Despite many songs that were not available yet on the platform, it provided an easy way to listen to music. And there was basically no need anymore to download music illegally, while it did fill the (little) amount of storage capacity on my hard drives. Thus Spotify got me on board and it reduced (yet not ended) my illegal downloading activity and for the first time in years, I found a way to listen to music legally again. It made me wondering how Spotify had done this. And I surely was not the only one that “fell” for Spotify. Spotify’s platform completely changed the music industry in order to deal with the threats of music piracy (Cox) and in this thesis I will try to explain how Spotify made this possible and why it is still there. While many paper have been written in the field of platform studies, these texts are rarely referenced in the emerging field of music streaming platforms. By using the different methodological approaches used in the analysis of platforms, I will give a basic framework for the description, analysis and positioning of this new sort of platform, the music-engineering platforms. I will base my analysis upon the business model of the multi-sided market that I will use as an analytical framework, and explain how the technical and expanding evolution of Spotify’s platform illustrates how this platform was able to rise and sustain in our contemporary society and to cope with the demands of their distinct groups of stakeholders. I will use the following research question, which will guide me through my research progress: How does the evolution of Spotify’s platform over time relate to the way Spotify orchestrates its relationships with its most important stakeholders? 2 In the rest of this introduction I will reflect on the way digital music and cloud music services have affected the music industry. Chapter 2 will give a reflection on the way music-streaming services were likely to arise in our contemporary society, especially from a media-ecological perspective. In chapter 3 the different approaches within the field of platform studies will be described and discussed. Chapter 4 will indicate how these approaches can be combined and operationalized as basis for my research. Chapter 5 will give my analysis of Spotify’s platform development over time leading in to answering the research question put forward. Finally, a conclusion will be given resulting from my research on the rise of Spotify, and how this can be understood in the general context of platform studies and other approaches I discuss in this thesis. 1.1 DiGital Music The digitalisation of music has caused several problems for the music industry and it is struggling to stay in control on all fronts (Hesmondhalgh 57). When I speak of the music industry in this thesis my aim is to not only describe the recording industry which is many times mistaken to be the only group of companies within an homogeneous music industry, but also all organisations and individuals from other industries such as the live music and publishing industry (Williamson and Cloonan 314). The problem for the music industry was caused by the fact that digital music was easy to copy and circulate (Hesmondhalgh 59). Many platforms that supported unauthorized file sharing seized the opportunities this simple fact brought about. Hesmondhalgh describes four technological innovations, which were, according to him, responsible for the way digital music influenced our contemporary music industry. Firstly, the development of the MP3 format made it possible to compress audio files to make it suitable for computer storage. Secondly, the rise of high bandwidth connections, which made it possible for more and more people to download music online. The third innovation was the introduction of computers with increased storage capacity and possibilities to play music. And finally, the fourth innovation was the development of software that made it possible to convert audio files on CDs to the easily replicable MP3, and other formats 3 (Hesmondhalgh 59). All this created the fundamental base for illegal file sharing platforms to use peer-to-peer networks in order to make basically all music available for everyone for free. Obviously this was illegal and even to this day the music industry found itself in an on-going battle with unauthorised file sharing with a contemporary example such as Soulseek1. The digitalisation of music, although quite bad for the music industry, did create possibilities for music service companies to distribute music in a variety of ways. One early example is YouTube who created a streaming service to distribute music thereby bypassing legal concerns (Hesmondhalgh 63). 1.2 Cloud Music Services Another significant development within the digital world, which was also important for the existence of a music-streaming platform such as Spotify, was the shift from software to services. In the past, people usually bought software that they could install on their personal computers. Nowadays, it is very common to subscribe to a platform and install a service. In this way, software has increasingly become a service that can be rented and does not need to be purchased (Kaldrack and Leeker 9). This development is what Kaldrack and Leeker call the Software as a Service
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