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For Spotify, a Cool Million Paying Subscribers

Spotify, the red hot online music service has gone past the one million subscriber mark — making it one of the more successful online music start-ups in the business. The company has raised $113 million and is said to be getting a fresh slug of money — $100 million or so — and is valued at over a billion dollars. The company is likely to make that news announcement tonight. Spotify users have put together 200 million playlists so far.

Daniel Ek, a founder and the chief executive officer of Spotify says that getting past the one million paying subscriber mark in two years is a testimonial to the power ofits freemium model. The ratio of paying to subscribers to active free subscribers of Spotify’s music service is about 15 percent. Spotify is trying to find its way into the US market.

In a blog post, Ek noted:

‘It seems like only yesterday we were hatching ideas for a new music service in a tiny office-cum-apartment with a broken coffee machine, and the party we threw having reached one million users almost two years ago today was one to remember. So it’s with a sense of real pride and excitement that we can announce a new milestone today, having welcomed our millionth paying subscriber to the service.

In November 2010, it was reported that Spotify had about 650,000 paying subscribers. Using  back of the envelope calculations, it seemed that Spotify brought in around $135 million in revenues in 2010.

The rough estimates I had used showed that the company was adding about 42,000 paying subscribers every month. It seems new monthly subscriber growth has almost tripled. In three months since, the company seems to have added over 350,000 subscribers.

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6 Responses to “For Spotify, a Cool Million Paying Subscribers”

  1. Hmmm… Because everything is so low margin, they’ll never make enough money to ever justify their valuation or their investment. They may be “red hot” but, between:

    * Licensing costs per streamed track and
    * Cost of bandwidth for streaming

    They can never turn a profit, which is why they’re taking so much investment. Unless the music industry capitulates and picks the business model of Spotify, instead of the iTunes model:

    * Itunes pays approx $0.94 cents to labels
    * Spotify pays approx $0.00029 cents to labels

    Thats not going to happen soon. And I predict that the service will continually grab investment dollars — and probably sell CPM ads around the free part of their service to justify that *some* revenues are actually coming in.

    Its high time we stop enabling companies like these who have absolutely no path to profitability in their current business model. I’m not saying they can’t pivot into something else, but they way how it is not, no profits will even ensue.

    And Om, you should know better.

    • catullusrl

      Your analysis is wrong for a number of reasons.
      1)Emerging markets (eg Russia,Brazil,Indonesia)In these areas the record labels have nothing to cannabilise so terms will be easier. A lot of people live in these countries.
      2)Other revenue streams
      a)software distribution (eg Bing toolbar)
      b)user data – Spotify know what music you like and where you live.This info is useful to record labels and artists to upsell merchandise,endorsed goods and tickets.For example Live Nation has used Groupon to offload difficult to sell concert tickets at discount prices; Spotify should be a better vehicle to fulfil this function.
      c)e-commerce If you were a music hardware manufacturer(eg headphones, sound systems) wouldn’t you like to get access to Spotify audience of music lovers and sell direct through their platform?
      3)Better advertising. None of these music startups engage in behavioural targeting or collect detailed social or economic data from their user.
      4)Spotify’s bandwidth costs are lower than other music subscription services – P2P

  2. Until they can spread the service more around the globe (the US), they couldn’t care less if u want a BB app and ain’t interested until then.

    • David,

      Agreed though it is doing really well overseas and they need to keep doing that in order to build the scale which would allow them to exist as a company and get more traction with the music industry.