The brand apple sends the clearest sign of his ambition to dominate the emerging market for streaming music at any cost
When Spotify raised more than $ 500 million this month in a financing round that valued the company of music streaming 8,500 million dollars, investors shrugged off the risk that would be crushed in a fierce battle with Apple.
After all, the Swedish start-up was on a roll. The number of subscribers has doubled in the last year to 20 million, which gives the company a significant lead over its rivals in the race for control of the rapidly growing market.
But Sunday Apple sent the clearest sign to date of its ambition to dominate this emerging market almost at any cost, even if it means burning a portion of its cash 200,000 million dollars in the process.
A day Music launch of Apple, the company faced growing criticism of artists and independent record labels on key conditions of its new subscription service for $ 9.99 a month. Singer Taylor Swift said in a blog it was “shocking” and “disappointing” that Apple refused to pay artists for music offered to users during a trial period of three months.
A day later, Apple changed its tune and said it would pay per play.
Apple’s decision to spend more money in this regard has been welcomed by people in the music business, but it is a bad omen for Spotify. The company, which has losses, and suffered pressure from copyright holders, including Swift, who removed his songs from service last year.
Mark Mulligan, an analyst at Midia Research, notes that Apple’s decision to pay higher author rights that Spotify may be calculated to pressure the market leader.
The big problem for Spotify is its ability to make money is at the mercy of the owners of the Copyright. Some of them are Vivendi’s Universal Music Group, Sony Music Entertainment, Warner Music Group and Len Blavatnik, who in any case have a small stake in the company.
Under the conditions of their license agreement , requires a Spotify to pay 70% of their income on rights to record labels.
This burdensome licensing structure, made in 2014 selling costs ascendiesen more than 81% of its 1000 million euros in revenues. After fixed costs include labor and infrastructure, the group reported a net loss of 162 million euros.
Andrew Sheehy, Generator Research analyst, argues that the three majors have such tight control over the company that in the worst case, could lead to the insolvency.
“The greatest existential threat to Spotify is that a small number of executives in the music industry take wrong decisions and end up killing company, “he says.
One of the hazards is that Spotify may be required to meet payments from Apple to the music industry. For investors in Spotify, this would be a disaster. Earlier this month, Apple announced it would pay 73% of Apple’s revenue Music record labels, Spotify beating three percentage points.
For Apple, who transformed the music market ago 12 years with the launch of the iTunes download store, it is essential to gain a large market share streaming. This is not because the company sees a profitable opportunity in the format. Rather, the offer of an attractive music service is important to your core business: selling devices like iPhone
Meanwhile, Google and its subsidiary YouTube have also invested heavily in it. music offerings. It is thought that these companies are willing to operate its music with losses in the near future, in order to further their ambitions in the business.
Spotify strengthens its strategy
To maintain leadership, Spotify has increased its expenditure, although this away the prospect of profitability. This month, the company added video and podcast (radio commercials) to your platform, as part of a reform of the product. Is also investing in technology, and last year tried to improve its recommendations for songs and artists with the acquisition of The Echo Nest, a company of musical data, for 50 million euros.
An investor in Spotify points Apple and Google are trying to “enter the fray with products that are likely to be lower in all respects except in their ability to come factory installed on each device.”
Proponents believe that Spotify company can continue to increase its share of the global market for streaming, which Midia Research is expected to expand to 3,300 million by 2014 8.000 billion in 2019. They also believe that free supply and without publicity of Spotify, which the company says it has 55 million users, can take on the global market for radio, valued at 46,000 million dollars.
A person close to Spotify states that the major record labels are interested in the Swedish company becomes a strong and sustainable business, and serve as a counterweight to the digital domain of Apple and Google.
Mulligan says there is a possibility that Spotify is able to leverage its advantage pioneer and reach 35 million subscribers five years, which would give more than half of the market for streaming of payment.
However, it also warns that it is easy to envision a scenario in which Spotify overtake Apple. Whatever the company ranking first, warns that Spotify will have to find a way to dramatically reduce costs, because “the current model is not sustainable commercially”.
Funds @ elEconomista .com
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