Beset by rivals and record labels, Spotify plots path to profit

Wed Jun 1, 2016 11:36am EDT
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By Mia Shanley

STOCKHOLM (Reuters) - Spotify is a household name, with more paying users than any other music-streaming service in the world. But it doesn't make a penny.

Those 30 million paid subscribers help it rake in almost half the revenues in the global industry. But most of the money goes to record labels and artists, while the privately owned Swedish company faces growing competition from Apple APPL.O with its deep pockets and massive iPhone user base.

To reduce its dependence on labels and stand apart from rivals, Spotify is broadening beyond its music library. It is making its own videos, such as interviews with artists, and producing other content like pop-ups that explain lyrics. This drive is being led by a senior executive poached from YouTube.

The company is also looking to capitalize on its mobile app's dominant subscriber base - and expand it - by investing in algorithms that "learn" users' tastes and by offering personalized services such as concert recommendations and artist memorabilia.

How the 10-year-old company fares with this drive in coming years could determine whether it can stay independent, and perhaps go public, or go the way of many other European tech start-ups and be swallowed up by bigger Silicon Valley fish.

Its success or otherwise will be a test of whether Spotify's "freemium" business model is viable - most of the firm's 75 million users listen for free with commercial breaks.

It could also point to a wider reality of whether music streaming can survive as a standalone business, or must simply be one of the services offered by a big diversified tech company like Apple, Google (GOOGL.O: Quote) or Amazon (AMZN.O: Quote).

"Can streaming be a big enough business on its own, to stand on its two feet forever? I think the answer would have to be yes if you look at Netflix and what they are doing with TV," Jonathan Forster, a Spotify vice president and one of its first employees, told Reuters at the company's Stockholm headquarters in a meeting room called Rolling Stones.   Continued...

Headphones are seen in front of a logo of online music streaming service Spotify in this illustration picture taken in Strasbourg, February 18, 2014. Spotify is recruiting a U.S. financial reporting specialist, adding to speculation that the Swedish start-up is preparing for a share listing, which one banker said could value the firm at as much as $8 billion. REUTERS/Christian Hartmann