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Could Swedish-based Spotify be making the case for ad supported music online? Perhaps.
While other digital music startups struggle with copyright fees and broadband charges, Spotify is making friends with major music labels — and helping them bring in revenue.
The head of Universal Sweden told a Swedish publication this month that Spotify now makes more money for the label there than iTunes. If those numbers are accurate — and can expand to reach other parts of the world — they could represent the silver lining the music industry's been looking for. And go a long way toward explaining how Spotify sweet talked the labels into giving the company access to stream such extensive catalogs online for free.
Spotify has yet to launch in the U.S., but it is hugely popular in other parts of the world. The company streams label approved music — paired with ads in its free version and for a monthly fee for those who prefer their streaming ad free.
Unlike other streaming services, Spotify has made nice with the major labels by offering them upfront fees for the right to stream music and sharing ad revenue with the labels as well, though they have not fully disclosed the revenue terms that major and indie labels receive.
But it appears that the percentages are pretty favorable, at least toward major labels. According to SwedishWire:
“In five months from the launch Spotify became our largest digital source of income and so passed by iTunes”, said Per Sundin, head of Universal in Sweden. “It’s a fantastic development explained by the fact that Spotify really has exploded.”
Sweden's music machine is a much different beast than industries in countries like the U.K. and the U.S. According to International Federation of the Phonographic Industry’s latest figures, the Swedish music industry is currently worth about £6.58 million. The U.K. market in contrast brings in £153.57 million.
Also, Sweden has an incredibly high number of illegal downloaders, which might help to explain why Spotify has so quickly eclipsed iTunes sales. But if people are streaming music on a site that pays labels royalties instead of illegally downloading music at a huge loss to music companies, that could be a big boon for the industry.
And if Spotify starts bringing in decent revenues for the major labels, a decent business strategy for music sharing online could start to develop.
"If true, this begins to pose some problems for Apple, and begins to validate Spotify’s business model - if it can pay out more money from ad income than iTunes is from a la carte purchases prices, that would be a watershed."
A senior music exec tells The UK's Telegraph:
“If Spotify’s user base and advertising revenues continue to grow at their current rate, the music industry is looking at a really significant new revenue stream in about six months time.”
Musicians may not see that profit for awhile, however. A Spotify spokesperson tells The Telegraph:
“Collectively we won't be able to change the music industry model overnight – we're seeing revenues grow month-on-month which are being shared with rights holders in line with our agreements.”
But this could be a very big deal. Pair that with Spotify's eagerly anticipated U.S. launch later this year, and you have all the makings of a media darling. Spotify has been getting a flood of favorable press lately. According to Valleywag:
"Spotify is everything iTunes should be: Simple, free and completely ubiquitous. The Internet positively overflows with shared Spotify playlists. But the damned Europeans have the online music service all to themselves. Well, almost all of it."
And just today, Facebook CEO Mark Zuckerberg declared on his Facebook status that "Spotify is so good" — a brief note that has since lead to rumors that there will be a deal or merger between the two companies in the near future.