Spotify Keeps Momentum and Catches up to Competition

on Dec 7, 2012
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At a press launch in New York on Thursday, Spotify’s chief executive Daniel Ek said the company has now attracted 1 million US subscribers, catching up to the decade-old Rhapsody in only 16 months. The music streaming service has expanded its paying subscribers base from 4 million in July to 5 million in December or a quarter of the total 20 million active listeners.

“We’re the biggest subscription music service in the US, but also the fastest growing one. We’ve accomplished in one year what it took others a decade to do,” said Ek referring to its rival Rhapsody, which was launched in December 2001.
According to Spotify’s CEO total royalty payments doubled in the last three quarters to $500 million (£311 million). In comparison music video service Vevo paid $200 million (£125 million) to labels and publishers, while US streaming radio service Pandora is expecting to pay out $250 million (£156 million). Some artists have complained that they earn far less from plays on Spotify compared to purchases of CDs or iTunes downloads. Mr Ek addressed those concerns by saying the company pays out nearly 70 percent of all the money it makes to rights holders, same as Apple’s App Store. “Those are thin margins, it’s not great. But we know that at scale it’s a great model and it works for us,” he said.

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At the conference Spotify revealed a number of upgrades to its services, including an improved song recommendation system and a “Follow” tab which allows users to track the music preferences of friends and celebrities. According to the Swedish company’s managing director in New Zealand and Australia, Kate Vale, the upgrades were about “bringing artists and listeners closer together”.”Essentially it’s all around discovery. So now you’ll be able to follow certain tastemakers, artists, and celebrities on Spotify,” she said.

**Spotify Financial Performance**
!m[The Music Streaming Service Implements New “Follow” Feature for Users](/uploads/story/986/thumbs/pic1_inline.png)This year the Swedish music streaming service completed an investment round raising $100 million (£62 million) from investors, which included Coca-Cola and Goldman Sachs. This valued the company at $3 billion (£1.87 billion)–nearly double that of publicly listed Pandora(NYSE:P), whose shares fell almost 20 percent on Wednesday after it lowered its fourth quarter revenue guidance. The radio streaming service blamed investor caution around the fiscal cliff for the share slide but analysts cited increased competition from Spotify as the main reason.

Despite boasting of its improving subscription base, Spotify is yet to turn a profit with revenues doubling since last year to €187.8 million (£152million) but losses also growing by 59 percent to €45.4 million (£36.6 million). According to Mr Ek if the company didn’t invest in growth and in expanding to new markets, it would have swung to profit.

Spotify might have muscled its way into the music selling business but the undisputed king of content-selling space remains Apple – the iTunes store started with $0.99 downloads and now sells $488 (£283) annual subscriptions to the New York Times. Its revenue from media sales alone totalled $8.5 billion (£5.3 billion) for the 12 months to September.

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