A Real Options based Valuation of the Music Streaming Service Spotify
Analysis of music streaming services and its future profitability based on the example of Spotify
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This book analyses Spotify, the current market leader of music streaming services. It provides a mathematical model which calculates future pay-outs of artists and the equivalent number of album sales needed to be indifferent between streaming and selling CDs. It shows that a musician's net income from Spotify could increase up to five times on average which rises the equivalent number of sold albums, necessary to offset these opportunity costs. Spotify's real options based valuation calculates two different market values: first, $ 8 bn with exponential growth assumptions and a Geometric Brown...
This book analyses Spotify, the current market leader of music streaming services. It provides a mathematical model which calculates future pay-outs of artists and the equivalent number of album sales needed to be indifferent between streaming and selling CDs. It shows that a musician's net income from Spotify could increase up to five times on average which rises the equivalent number of sold albums, necessary to offset these opportunity costs. Spotify's real options based valuation calculates two different market values: first, $ 8 bn with exponential growth assumptions and a Geometric Brownian Motion approach, second, roughly $ 1 bn with an Ornstein- Uhlenbeck process and a long-term mean market share of 40 %. Additionally, this book provides a break-even analysis of three different scenarios and shows the corresponding future profitability: when Spotify increases its current market share of 37 % up to roughly 50 %, it will report in black figures in 2016 even with an increasein costs of 82.3 % annually.
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