Spotify worth more to record companies than iTunes

August 25, 2009

Spotify worth more to record companies than iTunesApple’s iTunes service is the most popular way for people to purchase digital music right now. “Purchase” being the operative word, because methods where people don’t pay for it are probably more popular all told. However, Spotify, which kind of acts as a compromise between iTunes and file-sharing, could have be about to trump iTunes by being worth more in monetary terms to the major record labels than even the Apple service is.

In terms of music and to access new music, 2009 has been all about Spotify for me personally. I know many of you in the U.S. will now be cursing me due to the fact that Spotify is still a Europe-only service, but all signs point toward Spotify making it the the United States sooner rather than later. And the revenues heading the way of the record labels should encourage this happening.

I first got my hands on Spotify in January of this year and I immediately loved it. Even now, eight months later, it is still an app I use most days. Unlike either iTunes or illegal file-sharing, Spotify doesn’t see users buying digital music files, offering instant and always-on streaming instead. The basic ad-supported model is free while a very reasonable monthly subscription removes all advertising and adds extra features to boot.

Last week saw The Guardian report that the major record labels had been given 18 percent shares in Spotify. Which must surely be one of the reasons they gained so much support from these record labels which normally resist backing any new venture which seeks to give their content away for free.

Today, PaidContent reports how Per Sundin, managing director of Universal Music, has claimed that, in Sweden at least, “In five months from the launch, Spotify became our largest digital source of income and so passed by iTunes”. Which is huge news, and a worrying trend for Apple if it were to be repeated in other markets.

While The Telegraph today reported that a senior music industry source as predicting that, “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.”

The figures Spotify is paying out to record labels is a well-kept secret but it must be a substantial amount each month for this kind of prediction to be made so confidently.

The major record labels seem to be winning from the success of Spotify in every single way. Spotify pays out for every track streamed in a month regardless of whether the money is coming from advertising revenue or paid subscriptions. And if Spotify founder Daniel Ek ever decides to sell up, the record labels are sitting on 18 percent of the company’s worth. Which with the way things are going is a considerable amount of money.

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