Even if you don’t have Spotify on your computer or smartphone screen, you should put it on your radar. Music execs tell me that the streaming service, introduced in the U.S. last July, is beginning to break from the pack of digital music providers which includes Pandora, Rdio, Rhapsody, MOG, and Slacker. “The big question is whether it will become the iTunes of the streaming media market,” one tells me. Credit Suisse’s John Blackledge took note of Spotify yesterday in a 63-page report initiating coverage of Pandora Media, which offers a radio-like streamed service. “There is a lot of discussion and buzz around Spotify,” he says noting that it is “looking to siphon market share” from some of the giant sellers of downloaded music including iTunes and Amazon. Spotify has about 10M active users worldwide. (The company won’t break out the figures by country.) The vast majority use its ad-supported, free service which — in the U.S. — offers unlimited access to its library of more than 16M songs including tunes from all four major recorded music companies: Universal, Sony, Warner, and EMI. (No Beatles, though; iTunes has exclusive online rights to the group’s catalog.) The company’s goal, though, is to nudge users into paying for a subscription. About 3M people pay either $4.99 a month (for unlimited, ad-free streams to computers) or $9.99 (for unlimited, ad-free streams to mobile and digital devices as well as computers, and the ability to download songs for off-line listening). Users can listen to specific songs on demand, or let the service create playlists based on a particular performer or other criteria. While other companies offer similar services, execs say that Spotfy one of the easiest to use — and integrates well with Facebook, where users can share songs, playlists and recommendations. Indeed, only Facebook members now can sign up for Spotify.
Spotify needs to grow quickly, though — and it’s feverishly trying to do so. Last week it launched in Germany, its 13th country. The UK-based company is spending heavily to secure the pole position in streamed music. Spotify lost about $41.5M in 2010, the company reported last year. About 72% of its revenues go to record companies and other music license holders, Blackledge estimates. (By contrast, Pandora only devotes 54% of its revenues to content costs.) Still, Spotify was valued at $1B in a funding round last year that included private equity firms Accel Partners and Kleiner Perkins. Other investors include Hong Kong-based billionaire Li Ka-shing, and Russian billionaire Yuri Milner, and Napster co-founder Sean Parker.
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