Spotify’s Ascension, and the Future of Online Streaming Services

Spotify, in recent years, has become the face of the online music streaming business. Just last year, the company reported more than a billion dollars in revenue. However, like many tech company in the nascent stages of establishing their business models, they have yet to make a profit.

Spotify is trending positively though. The company increased revenue, and decreased losses from 2012 to 2013. At year end in 2013, the company had more than 900 employees. However, the founder of Spotify, Martin Lorentzon, has made recent statements that company has grown significantly since then, and will soon boast more than 2000 employees.

These numbers demonstrate the rise in popularity of streaming music online.

The future largely depends on the music industry’s attitude to online streaming, in general. It has proved to be quite a controversial topic, recently.  The company which was founded in Sweden six years ago is currently available in almost sixty markets worldwide.

Spotify co-founders, Daniel Ek and Martin Lorentzon

Spotify co-founders, Daniel Ek and Martin Lorentzon

The growth of online streaming has occurred as the use and sales of CD’s and downloads has decreased sharply. Services, such as spotify, may be the next primary source of revenue for the music industry.  The majority of people actually listen to Spotify for free. About eight million of the 36 million active users in 2013 were paid subscribers. However, these subscriptions account for the vast majority of the company’s revenue. 91 percent comes from sales, and only 9 percent come from advertising.

The seemingly low payout from the free online service has engendered significant criticism from prominent music industry figures. Taylor Swift, decided to pull her new album, 1989, from the Spotify this past month after a minor feud. Swift and her representatives only wanted paid subscribers to have access to her new album. Spotify did not acquiesce, and Swift promptly removed her music.   Spotify reacted to the criticism explaining that the company has paid out more than $2 billion in royalties since the company was created in 2008.  Almost a quarter of Spotify’s revenue eventually goes to music publishers and record companies.

The music industry’s frustration will probably continue for the foreseeable future.  With the growth of online streaming, competitors to Spotify such as Rhapsody, Rdio, and Google Play Music have also gained traction. Youtube recently announced a paid subscription for music, and Apple is expected to enter the market soon. Spotify, however, is still the key player in the industry. There are some talks of an IPO, but company representatives refused to comment on their future plans. Spotify was valued at around $4 billion last year.

 

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