Spotify’s streaming revolution
“Spotify is a hit,” said Matt Phillips in The Swedish music-streaming giant went public last week, concluding its first day on the New York Stock Exchange with a valuation of more than $26 billion, similar to companies such as M&T Bank and General Mills. The blockbuster figure was some “rare good news” for the music industry, which has been buffeted by technological change, and confirms the “ascent of streaming as the new dominant format.” After a 15-year decline, as digital piracy crippled sales, music revenues are now growing, rising sharply last year to $8.7 billion, their highest level in a decade, with streaming accounting for 65 percent of the total. Record labels are seeing “significant revenue growth for the first time in nearly two decades.” And that’s largely thanks to Spotify, which helped change the way people listen to music and got them used to paying for it again. In little under a decade, the company has signed up 157 million users around the world, 71 million of whom pay $10 a month for subscriptions. That’s twice the number of subscribers paying its closest competitor, Apple.
Spotify would be the first to admit it has a bumpy road ahead, said Aaron Mak in Slate.com. Its impressive growth has never translated into profits; last year, it lost $1.5 billion despite revenues of nearly $5 billion. One of problems is the licensing dues it has to pay to music publishers. Every time a user streams a song, the company forks over a licensing fee. That means even as its user base grows, so do its content costs, “making it difficult to turn a profit unless it finds another sustainable revenue source or figures out how to pay less to publishers.” Spotify, for its part, insists it will be able to cut a more beneficial deal with music labels once it grows big enough. I wouldn’t be surprised, said Erin Griffith in Wired.com. Like Netflix, Spotify has outlasted a litany of now-defunct competitors and imitators. It has also done something truly remarkable: persuaded an entire generation of music fans to pay “to access digital media that they once got for free.” Now it just has to hold on to its No. 1 market position as Apple, Google, and Amazon build competing services.
The size of Spotify’s user base remains its key advantage, said Stephen Witt in NPR.org. Users not only pay for subscriptions, or listen to ads on the free tier—they also provide data. Analytics can capture listener demographics such as age, gender, and location, which can help musicians figure out where to tour and allow labels to better hone their marketing. A spot on one of Spotify’s curated playlists, which are made by a staff of editorial tastemakers aided by machine-learning algorithms, can instantly turn a song into a moneymaker. As with Facebook, data “could be Spotify’s most valuable asset.”