The History Of The Music Industry – Riddled With A Series Of Innovations

The music industry has seen many “firsts” in its lifetime. From vinyl records to cassettes to compact discs, nearly every advancement in storage technology was somehow related to music. All music-focused media technology had two things to focus on – the number of songs stored on the media and the quality of music that was played back.

Early forms of storage media had many limitations. They were not able to store a lot of data and were unreliable. Cassettes and compact discs had similar problems and their quality degraded over time as they were replayed. They also posed problems with licensing when shared, which had very few “elegant” solutions to fix them. Then in 2001, a revolutionary device changed everything. The iPod- introduced by Apple in 2001, this device was the answer to all of life’s problems! Okay, not all, but then most of them!

Innovations and technological advances

Life has never been the same since the iPod. Credited with changing the fortunes of Apple as a company and creating a whole new ecosystem, the iPod had accomplished what dozens upon dozens of discs and hundreds of cassettes together could not. It packaged everything in a wonderful bundle that you could always carry in your pocket.

Everything changed again in 2007 with the advent of the iPhone. A revolutionary device that combined the power of a phone, a music player and a camera all rolled into one seamless, high-quality device that took the world by storm and created yet another revolution in the music industry – streaming licensed music on-demand. This eliminated a product from Apple’s own product line and replaced it with a newer, better one. 

The invasion of the apps

The advent of the app-o-sphere has created a flurry of music streaming apps. The number of songs at anyone’s disposal went from hundreds to thousands to millions. Along with the pioneers like Apple Music, apps like Amazon Music, Spotify, Pandora and Google Music have slowly gained ground, aggregating nearly 300 million users as of 2019.

Users prefer one app or the other according to the amount of music selection available or the user experience. Of all these apps, one has managed to surge ahead of the pack – Spotify. Commanding a third of the streaming music market share around the world, Spotify is a force to reckon with. With a user interface that nearly everyone loves and an unrivaled selection of songs from thousands of artists, Spotify is the most popular music streaming app in the world.

Why Create an app like Spotify

Why jump the music streaming app bandwagon?

Of all the apps in the world, music apps ring a bell in nearly every ear. It is very difficult to find an individual who has no interest in some kind of music. Free music apps capitalize on this concept and provide a small catalogue of songs without charge. They do this to enhance their popularity and it shows. Even if you do not use Spotify yourself, then chances are you must have heard of it. With a single flat charge for unlimited amounts of music per month, Spotify changed the rules of playing music online and became the way people listened to music. The main reasons why people move to a service like Spotify include:

• Affordability

The cost of music was a major reason for music piracy. With piracy, artists, labels, and those associated with distributing legal music suffered. Services like Spotify ensured that you could listen to nearly unlimited content, without having to pirate music, thereby lending a major hand in eliminating piracy and ensuring that everyone was paid their fair bit.

• A wide selection of music

Another problem that users faced was the availability of music. With regional players only offering regional content, many users were left wanting and turned to players like Spotify to ensure that they get the music they want at their convenience.

• Social engagement

Spotify just doesn’t play music for you. This app ensures that you can stay on top of your artist’s music game and never miss any updates from your favorite stars. 

• Features like Podcasts ensure that they emulate monologues like forums and convert them into a dialogue. 
• Users can share their playlists to ensure that others and their friends can listen to the music they want. This also creates a major impact by reducing piracy as most users unknowingly pirated music because they wanted to share specific tracks with their friends.
• You can share a specific part of a track if it suits a particular mood, reducing the need to copy-paste lyrics onto another social media platform.
• Sound quality is a major reason why people move to apps like Spotify. Their Very High sound quality setting can emulate the disc-like quality of up to 320kbps.
• Use the Radio option to ensure a wider selection of music. 

• Quick access to music

Spotify lets you control your music through voice recognition using smart devices like Alexa, Chromecast and others. You can listen to the music of your choice when you want, where you want, with no interruptions.

• Intuitive

Spotify uses intelligent algorithms that leverage the power of data analytics to recommend great music to you. This helps users discover newer artists and get exposed to quality content which they might otherwise not be aware of.

• Safe

Spotify promotes safety by ensuring that you can drive uninterrupted by having a driving playlist. Spotify also includes a nifty feature that reduces the UI to a few large buttons while driving ensuring that you can keep all your attention on the road.

 With over 12 billion ears around the world itching for music at all times, it is only natural that someone decides to build an app like Spotify. 

Current statistics of the online music industry

The music streaming app market is growing at a rapid rate and its revenue is expected to reach $17 Billion by the end of 2025, powered by the 2.5 billion users or 5 billion ears that are slated to use these apps. With a current user grab of 1 in 3, Spotify commands a 36% market share and is expected to grow to 40% in the next 5 years.

Spotify’s Financials

Spotify is considered to be one of the most valuable music streaming companies in the world. Currently valued at over $20 billion and with a posted revenue of around $5.3 billion in 2018, Spotify has come a long way since its inception in 2006. Spotify has generated nearly $10 billion in royalties for rights holders and musicians. 

Funding rounds

Spotify has raised $2.7 billion in 18 funding rounds to date. These include multiple debt financings and acquisition funding rounds.  According to Crunchbase, Some of the major funding rounds for Spotify include:

• $100 million Series D by Accel Partners (2011)
• $100 million Series E by the Goldman Sachs Group Inc. (2012)
• $250 million Series F by TCV (2013)
• $526 million Series G – 15 different investors (2015)

Spotify Revenue Model

How does Spotify make money?

Spotify makes money by monetizing its streaming services in two different ways. The primary source of income for Spotify is through its Premium Service and a secondary source is through its Ad-Supported service. 

1. Premium Service

The primary source of earnings for Spotify, its premium service accounts for approximately 89.7% of the total revenue of the company. The premium service offers unlimited online and offline access to its entire music catalogue of over 71 million songs without any commercials. With a revenue of around €4.7 billion in 2018 and a gross profit of around €1.3 billion in 2018, the premium service remains the main driver of income for Spotify.

1. Ad-Supported Service

Subscribers who do not wish to pay for a premium subscription at Spotify can still access a limited online music catalogue. This catalogue limits their streaming and offline-access and showcases both audio and video advertisements. This segment posted €540 million in revenue and 97 million in profit, making it around 10% of Spotify’s total earnings. 

How do musicians make money on Spotify?

Spotify is known as an online music streaming platform. The largest bulk of expenses for Spotify comes from the royalties they pay to labels and artists. Each time a song is played on Spotify, the company pays between $0.006 and $0.0084. This is further split between the artist’s record label (if they have one), the artist and entities like ASCAP (American Society of Composers, Authors, and Publishers).

According to the RIAA, the global music industry earns around 80% of their revenue from streaming music royalties, powered by popular platforms like Spotify, Pandora, iTunes radio and others.

This alone makes services like Spotify an exceedingly viable option for any artist who does not wish to share their revenue with a label or has not signed up with one yet. Spotify can help these artists get up and running and showcase their music to millions of subscribers on their service without going through the hassles of signing up with a label.

To put this into perspective, Taylor Swift’s immensely popular song “Shake it Off” earned her around $370,000, backed by over 45 million streams. A song that has about a million streams can roughly earn around $7000 on platforms like Spotify.

So how much does it really cost to build an app like Spotify?

Spotify is not just an app, it is an app, a service and an ecosystem rolled into one. With a musician’s rights first approach, Spotify has countered the menace of piracy by streaming their labels on their app and paying labels each time the song is listened to, ensuring that everyone benefits from the transaction.

Such services usually cost a lot to build and can be equally complex to maintain and update. Creating an app like Spotify involves a thorough study of the user interface of the app and creating a similar or a new interface according to what you found was lacking in the original one while keeping in mind the application logic at the same time.

This is time consuming, complex and requires experienced hands to craft. Creating an MVP or a minimally viable product is an effective way to test the waters and see if your idea can be financially viable for you.

Companies like Volumetree have already done the homework for you by researching and analyzing the features and the architecture of the app, its subsystems, and strategies. Music app development is divided into three distinct categories: Development costs, legal costs, and marketing costs. 

Here is a down-low of what an app like Spotify might cost. 

Initial costs of creating an app like Spotify include:

Development Costs

Development teams

Finding a good development team is a challenging task. A good app developer will range between $100-$1500 an hour, depending on the app and the developer. To provide an estimate that can serve as a ballpark figure, let us break down the various elements of the app to analyze the number of hours being spent on development.

User Registration and profiles

An important part of any application is the user sign-up process. This process needs to be fuss-free and easy, ensuring that users trust the app and are willing to sign up for it and create a profile while they are at it. 

Estimated Cost in hours: from 50-60

Social Media integration

Integration of the app with social media that include sharing and other features take a decent slice of the development pie. These features must be robust and should understand what your users really want. 

The estimated cost of social media integration in hours: from 20

User Experience

The most important aspect of application development is the creation of the user experience. Without an outstanding experience, people might not find your app to be a viable alternative to the existing apps. This includes personalization of the listening experience, visuals, functionality of the music player, managing playlists, searching for music, etc.

The estimated cost of user experience creation and development in hours: from 350

Total development cost: 430 hours. This translates to somewhere between $30,000 to $50,000 in development costs alone, depending on the cost of the development company, the quality of the final product, and the number of features needed. 

Legal costs

Developing an app is not the end of the road. Legality is a major aspect of the music industry and can change how much your app costs. 

Recording agreements and licensing

Artists earn their living from making music. This causes them to copyright their music and playing music that is copyrighted requires agreements with the artist’s record label to be made.

Apps like Spotify use two different licensing agreements that cover a broad spectrum of licensing requirements:

Sound Recording License

This agreement covers recording rights. Spotify uses the licenses received from Universal Music Group, Sony Music Entertainment Group, and Warner Music Group for this purpose.

Musical Composition License 

BMI and ASCAP manage the legality required for the rightful owners of the songs. 

Recurring Costs and ROI

Recurring costs are a major chunk of your expenses and can determine the actual return on investment your app can give you. For example, a major chunk of expenses of Spotify includes royalty payouts to artists. These costs currently amount to around $1 billion for Spotify. These costs are recurring and will need to be paid each time someone listens to music using your app. 

Marketing costs

Marketing, promotions, and user engagement are an especially important aspect of any product’s development. Your application must include a marketing budget and an effective strategy that will ensure that users get to “know” and download your app without “moving on”.

Final Words

In short, for someone on a shoestring budget, building an app like Spotify is not exactly going to be an inexpensive proposition, but an experienced development partner like Volumetree can help you by providing an app delivery package that involves development, and testing rolled into one for a single flat fee, ensuring that you are able to produce a minimally viable product that helps you test the waters before you break the bank.  Volumetree can also introduce you to their legality and marketing partners who can ensure that you are covered on all fronts. For more details, contact our sales team here.