USA TODAY International Edition
Spotify goes public: Why it’s a big deal, and what may change
Spotify has helped the U.S. music industry stem its growth slide. Now we are going to find out how it plays on Wall Street.
The music streaming service, which launched in the U.S. in 2011, became public Tuesday. Spotify shares (SPOT) rose 22% to $160.57 after trading began on the New York Stock Exchange. Shares closed at $149.01.
Spotify, developed in Sweden and first available in Europe in 2008, has the largest global reach of streaming music services.
It has grown to 71 million paying subscribers and 159 million monthly active users. In the U.S., Spotify claims 41% of the U.S. market share, outpacing the reach of rival music services from Apple, Amazon, Pandora, Soundcloud and Tidal.
The streaming music business is a tough one, and Spotify has yet to turn a profit despite increasing revenue 38% to about $5 billion in 2017 from the prior year. Losses topped $1.5 billion for 2017, up from $662 million the prior year.
Question: Why is it such a big deal for music lovers?
Answer: Spotify’s growth has helped the overall music business recover from its own years of decline. Music sales in the U.S. rose 16.5% to $8.7 billion, according to the Recording Industry Association of America. What helped the music industry to only its second consecutive year of growth since 1999? Paid music streaming subscriptions, which topped $4 billion.
In addition to a free ad-supported music tier, Spotify has a $9.99 monthly ad-free subscription which offers unlimited on-demand streaming of its 35 millionplus song library. There’s also a $4.99 monthly subscription for students and $14.99 family subscription for up to six premium users.
Spotify has helped the music industry slow a consumer spending decline sparked by the demise of the compact disc, said Paul Verna, a principal analyst with research firm eMarketer.
“It’s been basically a story of attrition. A lot of companies came along with what they said would be the formula for turning it around, Apple with the download model, Pandora and ringtones. But the only thing that has really worked in terms of generating big revenue is subscription-based streaming, and Spotify is the leader in that space,” he said. “If the music industry can get back to being a growing healthy business, then I think Spotify will play a big role in that.”
Q: Will we see any immediate changes in the service?
A: For now, it’s unlikely Spotify will make any changes in terms of offerings or prices, says Michael Pachter, an analyst with Wedbush Securities. However, the company will definitely have “a heightened focus on growth and profit going forward.” While the company may not raise prices, he says, it may limit free trials, which typically run for 30 days.
Q: What will Spotify use the money for?
A: In its filing with the Securities and Exchange Commission, Spotify says it will use the money raised in its offering to improve and grow its service. Spotify wants to expand its non-music content with more podcasts, short form videos and spoken word offerings.