What makes the Barcelona-Spotify deal so interesting?
Data, branding and entertainment: understand the deal that represents a milestone in sports
Earlier this month, one of the main football agreements in recent decades was made official. Leading brands in their fields of activity, Barcelona and Spotify closed a medium/long-term partnership, which promises to take the relationship between sport and entertainment to another level.
To understand this business in greater depth, we first need to understand what led each of us to get here.
Spotify
Spotify is a music streaming company, founded in 2006 in Sweden. At the time, people basically had two options for listening to their favorite songs digitally: paying for each one (iTunes model), or pirating with platforms like Napster.
The company, which was only officially launched two years later, emerged as a viable option between these two options, with a business model based on offering a “freemium” service (see below), and thus gained a very popular user base. large, obviously much more because of the “free” part than the “premium” part.
In the same year of release (2008) Spotify sold around 19% of its stakes to major record labels (Sony, Universal, Warner and EMI) as licensing agreements for their music. Ten years later, it went public on the New York Stock Exchange, valued at US$ 26.5 billion, and months later saw the record companies sell their shares, with the exception of Sony, which still kept half of it, and Universal, which still holds the same stake (today both have, together, something around 6% to 7% of the Swedish company). Read more about Spotify’s ownership structure here.
At the end of the same year, it launched its services in countries in the Middle East and North Africa and in 2019, two important news came: for the first time, the company was profitable, and it announced a change in strategy and positioning.
From then on, it would become a company focused on audio, rather than just music. From there, we saw a series of actions by Spotify in an attempt to expand its operations via the podcast market, buying from two start-ups in the sector, Gimlet Media and Anchor.
In 2020, it acquired exclusivity via licensing agreement for the most famous podcast on the platform, the controversial The Joe Rogan Experience (video below), for US$ 100 million (which was later reported to have been for double the value), in addition to signing partnerships with influencer Kim Kardashian, and with DC Comics. Investment in the audio sector lasts until today, and even expands into the audiobook business.
This diversification/expansion of operations makes even more sense when we understand a little more about the margin that each “product” offers Spotify.
A part of the business model, mentioned briefly at the beginning of the text, is based on a complex formula for paying royalties to record companies and artists (Read more here). Many of the singers complain that they are paid much less than they should (Spotify has gained great bargaining power), and they show great dissatisfaction. The singer Taylor Swift even removed her songs from the platform in 2014 as a form of protest.
It is stipulated, however, that 70% of the earnings that the company has with its music, is passed on to the record companies, which in turn, are responsible for paying the artists (Spotify recently even created an institutional website, Loud & Clear , with very interesting information on revenue generation and transfer of these). When someone listens to a podcast like Joe Rogan’s, the company appropriates all the money.
Today the company is the leader in its field, with 31% of the market share of the global music streaming market (graph below), according to MIDiA Research, a company that conducts research and analysis of digital markets in its survey for the second quarter. of 2021.
Despite being consolidated at the top, Spotify saw its share percentage drop compared to the same period in recent years: 33% in 2020 and 34% in 2019. At the same time, it is beginning to see the growth of Amazon Music, a service offered within from Amazon’s Video Bundle, and from YouTube Music. The study points out that the latter:
“It particularly resonates with Gen Z and younger Millennials, which should set alarm bells ringing for Spotify as its core subscriber base of 2010s Millennials in the West is starting to age.”
In 2021, Spotify implemented a price increase for several plans worldwide, including in Brazil, which may indicate, once again, an attempt to increase its margins, even with the number of users growing every quarter. Currently, according to the last report published, Spotify has 406 million active monthly users (between free and premium accounts), with a forecast that would reach 418 million in the first quarter of this year.
Spotify and Football
Within this context, Spotify started approaching football a few years ago, starting with partnerships with clubs that now have official profiles on the platform, and making playlists created by their players available. This was the case with clubs in Brazil, such as Palmeiras, the first in the country to have a profile on the platform, São Paulo and Santos. Boca Juniors also closed with the company (video below) in 2019. All these agreements, inclusive, were between 2016 and 2019.
Barcelona
On the other hand, in recent years Barcelona has been in a delicate economic situation. With the COVID-19 pandemic, the numbers got so much worse, to the point that the former CEO, Ferran Reverter, declared that if the club had been a limited company, it could have gone bankrupt in early 2021.
In addition to having lower revenues (mainly related to its Stadium, photo below), Barcelona broke the record of spending in its history: €1.13 billion. €112 were invested in the development of Espai Barça (project to modernize and renovate the Camp Nou and its surroundings), in addition to other “extraordinary expenses”.
As a consequence, the Catalan club released its accounts for the 2020/21 season with a deficit of €481 million. Projected revenue for the current season, meanwhile, was approved at 765 million, up 21.2% from past earnings.
The deal
Within these contexts, Barcelona and Spotify seem to have found in each other possibilities to solve their (current and future) problems. Spotify will be Barcelona’s sponsor and the club’s official Audio Streaming partner. The agreement, valid from July this year, basically involves four fronts:
1. Sponsorship of sports equipment
The first point refers to the sponsorship of the game uniforms of the men’s and women’s professional football teams (until 2025/26), which, according to the Mundo Deportivo portal, will be €57.5 million (R$292.5 million). Which will keep Barcelona as the third club that earns with sponsorship in their kit (graphic below). Spotify will also print the training shirts of the two teams, and of the Catalan football schools, the Barça Academy Pro, until 2024/25, for another €5 million (R$ 25.4 million).
Now, Spotify takes over as the club’s sole football sponsor, replacing three other companies. Rakuten, a Japanese e-commerce company, paid something around €55m to €60m (this last season, the amounts dropped to between €30m and €35m due to the effects of the pandemic) to stamp the center of the shirt. of the men’s team.
Beko, the home appliance company, paid €19m to appear on the sleeves of the game’s uniform and training shirt. With the pandemic, Beko renegotiated the contract to reduce the payment to between €12 and €10 million, giving up space in the sleeves.
Stanley Black & Decker, an industrial and domestic tools company, has been the official shirt sponsor of the women’s team since 2018, and paid €3 million per season.
2. Camp Nou’s Naming Rights
The agreement also involves the sponsorship of naming rights for the stadium, which will be divided into two stages: 1) while the modernization of Espai Barça lasts and 2) another long-term agreement after the completion of the renovation of Camp Nou, which will be renamed Spotify. Camp Nou (pictured below) from the middle of this year. The Swedish company will also have its brand present in other locations in the stadium.
Also according to Mundo Deportivo, this will be a €5 million deal for the first six seasons, with the possibility of renewal for another 15 years for between €15m and €20m for each of them.
The approval of the Espai Barça project took place at the end of last year, coincidence or not, two years after the Santiago Bernabéu modernization project. The works should be completed by the end of 2027, but the Camp Nou stadium is expected to be completed two years earlier, as shown in an official statement from the club. The expected expenditure is €1.5 billion.
Hoping that the alliance with Spotify will make the project “transform the facilities and surroundings of the stadium into a new world-class entertainment experience open to the city of Barcelona”, Barcelona intends to fund it with events that do not involve football matches (see chart below). In a dossier (very detailed, by the way) released by Barça, 63% of projected revenues will come from hospitality, sponsorship and naming rights, and from meetings and events.
3. Advertising assets
The third part of the agreement involves advertising assets at Spotify Camp Nou and Estadio Johan Cruyff (where the women’s and men’s football teams play), on billboards, press room, mixed zone, among others.
4. Experiences
Finally, the partnership also includes experiences and the presence of audiovisual content, hospitality packages (remember the graphic above?) and “Barça experiences”.
What can we take from all this?
A deal of this magnitude represents a step forward for sportainment. This business is the biggest one involving sports and music (although we have other important ones, as shown in Jay-Z’s relationship with football). With this panorama, we can analyze even more possible advantages for each one of those involved.
Regarding branding, the first aspect that is evident is the reinforcement of the global character that the brands achieved in this co-branding, as evidenced in the official announcement:
“The collaboration with Spotify also marks the Club’s strategic objective to proactively seek partners who share the values and philosophy that define its brand and, at the same time, allow it to maintain its status as a global reference, within and off the field, in an increasingly competitive environment”
While Barcelona on its main social networks has more than 260 million followers (only on official accounts in Spanish), Spotify, as shown above, has more than 400 million active users and has been expanding its operations.
Remember the Midia Research study, which said that Spotify’s main user base in the West was “starting to age”? So let’s go to the last part of the company’s announcement:
“Barcelona have legions of young fans all over the world — in fact, the majority of Barça fans are under 30, which is an extremely important audience for Spotify. These fans also reside in some of Spotify’s fastest growing markets, including India, Latin America and Indonesia.”
Still in these numbers, what may have been the main factor of this agreement is data sharing. Both can use each other’s database to get to know the consumption habits of fans/users and improve their products and also seek cross-selling. This can happen, for example, through geo-location, as exemplified by Spotify itself:
“Spotify is working with Barça to leverage our access to elements within the stadium to promote artists and enable discovery. For example, using dynamic digital displays to showcase and geographically target artists relevant to Barça’s global TV audience. While viewers in Europe might see a message about an artist, viewers in India might get a different and locally relevant message.”
In terms of management, both would now also become an entertainment hub. Spotify has the possibility of no longer being restricted to the digital realm, but now, it can “tangibilize” its experiences in one of the main tourist cities in Europe by having the physical space of Camp Nou and its surroundings at your disposal. It is possible that we will see the Swedish company promoting launches, events or even producing shows themselves.
It is conceivable that Spotify follows the line of “original productions”, as Netflix and Amazon do, and becomes the owner (as in the case of Joe Rogan’s podcast) and content producer, which would increase its profit margin and would also be a differential in relation to its competitors.
Barcelona also benefits from this, because it will likely have secondary financial gains by taking a share in the revenues of possible future concerts organized in their stadium. Furthermore, the use of Camp Nou (pictured below) would not only be limited during the game season, but throughout the entire year, which would generate recurring revenue for a longer period of time.
This, without counting, of course, the immediate financial gain that the culés will have. Adding all the amounts together, the first years of the agreement will give the club around €67.5 million (playing and training uniform and naming rights), which represents 10.7% of its revenues from last season.
Complex and multi-factorial, the partnership between Barcelona and Spotify is very promising and, as seen here, very, very coherent.
*special thanks to José Sarkis Arakelian, Brazilian PhD professor in Marketing Strategy, for the “consultancy” in the production of this text
- Twitter: Theodoro Montoto
- LinkedIn: theodoromontoto
