FT : Spotify Could Rock Apple’s Music World

Thursday, August 6, 2009

Buzz is fickle.  It can lift companies up suddenly, then leave them hanging after public attention moves on.  Such was the case with Joost, the online video service launched to much fanfare in 2007 that later fizzled.  The latest buzz in the tech world is Spotify.  The Swedish music-streaming service has gained a 2m-strong following since it launched in Europe last year.  Now it aims to raise $50m ahead of a US debut.  Music fans aren’t the only people raving about Spotify’s slick software, which allows them unlimited online access to a library with millions of songs.  Record labels believe Spotify may be the industry’s answer to piracy.  The fact it might also weaken Apple’s grip on the legal online music market doesn’t hurt.  The hope is that Spotify’s free, ad-supported service will nudge casual file-sharers away from illegal download sites.  (Users who don’t like ads can subscribe for a £10 monthly fee.)  Labels are encouraged by Swedish sales figures, Spotify’s home market.  Digital music sales there rose 60% between January and June.

Yet if a start-up like Spotify really is the music industry’s great hope, its future is bleak indeed. Streaming music services have been around for years.  Yet piracy still accounts for over 90% of digital music activity.  While some outfits, such as Last.fm, have been bought by big media companies, none has begun to match iTunes’ success.  Also, Spotify’s business model requires it to pay royalties on songs that are played.  To meet those costs, it has to expand its subscription business.  But a key plank in its strategy – a subscriber-only mobile application for the iPhone – needs to be approved by Apple.  If Spotify really is a challenge to iTunes’ 70% market share, it is hard to imagine Apple pressing “play” on that idea.

Reference : http://www.ft.com/cms/s/2/2043b366-81c6-11de-9c5e-00144feabdc0.html

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