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Spotify Expected To Launch Movies, U.S. Service

Posted on Thursday, May 19th 2011

According to ABI research, mobile music streaming will see significant growth in the coming years with the subscriber base expected to cross 161 million by 2016, compared to 5.9 million projected by the end of the current year. That translates to a compounded annual growth rate of 95%. By 2012, Asia Pacific should become the biggest market for mobile music streaming. The report also claims that service providers such as Spotify will be one of the big gainers in this music trend. Below is a graph from the report that shows the geographic spread of this growth.

UK-based Spotify was founded by serial entrepreneurs Daniel Ek and Martin Lorentzon in April 2006. Spotify is an online music service provider that lets its subscribers stream and share music from their collection of more than 13 million tracks. It has a registered user base of more than 10 million subscribers, of which a million are paying subscribers. It offers services in seven countries including the UK, Spain, Finland, the Netherlands, France, Norway and Sweden. The market is abuzz with talks that the company will be launching soon in the U.S.

Spotify earns its revenues through a paid subscription service and advertising.  The paid packages cost anywhere from the £4.99 (~$8) per month for an Unlimited package to £9.99 (~$17) per month for a premium package. The premium subscriber package comes with features such as ad-free music, offline mode for playlists, and the availability of music on a mobile. Users can also opt for a free subscription which is an advertisement supported streaming service that comes with its limitations of playing hours. Due to royalty conditions, free subscribers can access a song up to five times and are restricted to a usage of 10 hours per month after the first six months of joining the service.

Spotify is a big name in the digital music market in Europe. Last year, they were ranked as the second largest source of digital music revenue in Europe after iTunes and is the leading digital music retailer in Norway and Sweden. In 2010, digital music in Europe grew 20% over the year. Globally, digital music accounts for 29% of overall music sales; however, in Europe, that number was significantly less at 20%.

Spotify’s latest financials are not available. However, figures available for 2009 reveal that the company saw total revenues of £11.3 million (~$18.3 million). Subscription sales for the year grew from £0.38 million (~$0.62 million) in 2008 to £6.8 million (~$11.0 million). Advertising accounted for the remaining £4.5 million (~$7.31 million), an explosive growth over the previous year’s £2,200 (~$3,570). However, it made an operating loss of £16.4 million (~$26.6 million) for the year. GigaOM’s back-of-the-envelope calculations project the company to report revenues of $134 million for 2010.

Till date, Spotify has received over 83 million euro (~$117 million) in funding from investors, which include Creandum, Northzone Ventures, Li Ka Shing, Wellington Partners, Sean Parker, and The Founders Fund.

Spotify’s Expansion Plans
There are market rumors that Spotify will be entering the movie streaming market as well. A few years ago, it announced entry into the video advertising market when I had predicted its move into the movie segment. Analysts at TechCrunch expects Spotify’s movie service to be available starting this fall as the company has landed studio deals. However, Spotify management is denying such diversification.

Recently, Spotify announced additional features for the mobile devices that let users synchronize their Spotify desktop tracks with iPods, iPhones, or Android-based mobile devices. Spotify is looking to compete with iTunes through this move. It is also expected to launch its own music store where users would be able to download 10 songs at £8 (~$13) or 100 songs at £50 (~$82).

Additionally, there is news that Google is looking at Spotify to becoming its partner in powering Google Music. Google Music was originally planned to be launched this March, but has been delayed due to Google’s inability to tie up with record labels. However, management of both sides have remained quiet on these discussions.

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