Spotify, the popular music streaming service is expected to
go public next year writes The Wall Street Journal. Spotify was founded 2008 in
Stockholm, Sweden. It's said that they are working to collect half a billion
dollars in venture capital with the help of Goldman Sachs. The company is today
worth about $6 billion and has approximately 60 million customers, of which 15
million is paying users. The number of paying users is growing rapidly and is
up 50% since May last year. It costs $10 per month for using their premium
service, and the majority of the revenue goes to the record companies who
license the artist's music. They also have a freemium service where you can
listen to music for free with advertising. But advertising only accounts for
15% of the revenue, the rest does their subscriptions stand for.
The number of paying users is growing rapidly and is up 50% since May last year.
Spotify has become a very popular service, but their business
model is challenging. They have extremely small margins and have to pay record
companies every time someone listens to a song. It's because Spotify doesn't
own the music, the record companies do and they require more and more money
when Spotify expands. About 70% of their income goes to paying licensing fees.
In addition, they have major competitors such as Google's (NASDAQ: GOOG) YouTube,
Apple's (NASDAQ: AAPL) Beats, French streaming service Deezer and Germany's Soundcloud
(which was founded by Swedes). I think the toughest competition to Spotify will
come from Apple in the future. They are expected to integrate Beats Music in
iTunes and last year they had over 800 million iTunes accounts. Rumors say that
there may come a Spotify competitor already in iOS 8, so we don't have to wait
to iOS 9. Here you can read a post on why you should buy Apple for a long-term
investment, and you can also read about their acquisition of Beats:
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However, Spotify continues to grow and negotiating with
mobile operators and service providers to get include in their mobile wireless packages. Spotify has also
struck deals with wireless audio device producers like Jawbone to enter the
space of in-home streaming. It has also been said that Spotify is looking for partners
to help them fund and create exclusive content. Many believe that Spotify want to become an on-demand music and video service, they would then compete with
Netflix (NASDAQ: NFLX) and HBO. It's important to know that this is only speculation. But it
makes sense for me because it would be an expansion of their on-demand service.
However, it's a highly competitive market so they will need a lot of capital. Further, I'm skeptical
about whether it would be good for Spotify to go public. However, I still think
it will happen, and that there is a high probability of it happening next year.
But in the end I think Spotify will be acquired. A large tech company will
probably acquire the company, probably Google. It has been speculated
previously that Google has made an offer to acquire them, but that they have
been denied.
Many believe that Spotify want to become an on-demand music and video service, they would then compete with Netflix and HBO.
So what's next for Spotify? I think the most likely scenario
is that they are developing a video service. My thoughts are as follows, if they
don't want to sell the company they could have something going on. And they
have definitely received offers but apparently they want to continue to run
the company. We'll just have to wait and see what happens. But in my eyes
Spotify's future looks uncertain, what happens when Apple suddenly bundle Beats
Music with millions of new iOS devices? Then we have Google with Youtube Music
Key, what happens if their subscription version takes off? The main question is
whether Spotify is sufficiently unique to continue their success in the future.
Right now, is the stock market on fire. Just about all companies that're going public rise. So many would probably
invest in Spotify, whether they believe in the company or not. The company has
continuously lost money, but many companies listed have a high burn rate (burn
rate is the same as negative cash flow). Just look at Box (NYSE: BOX) who recently
was noted, their burn rate is crazy high. You can read a post I have written
about the company here:
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