The Spotify IPO: Streaming Success?
Streaming music companies are a hot commodity. What can we expect when Spotify goes public?
Streaming giant Spotify is about to go public. A successful IPO will see them valued at $8.5 billion. That’s a lot of money for a company that offers a business model which, a few years ago, no one believed would reach mass adoption let alone upend a traditional industry.
Streaming To The Masses
Incredibly, Spotify has managed to do this, even with a number of competitors snapping at its heels. With 100 million monthly active users, Spotify has done something even more impressive than just amassing a large usership. In reality, they’ve converted half (50 million) into paying subscribers. This has proven the concept that record companies were incredibly sluggish to catch on to. People WILL pay for music in a digital format; you just have to present it in the right way.
Streaming is the future of the music industry.
While the exact valuation of Spotify’s IPO is to be determined, the Guardian wrote that a successful offering will “officially crown streaming as the future of the music industry.” While Spotify is leading the game, “the company’s closest rival, Apple Music, counts 20 million paying users; Tidal, fronted by the rap superstar Jay Z, a little more than 1 million. Amazon and Google are also in the game, with Facebook a likely entrant.”
The Upward Trend
So how did we get here? How did we go from a music industry doggedly fighting illegal downloads in the hope people will keep buying a physical product to an industry where nearly every music listener is signed up to a streaming service of some type? The model is far from perfect however and Spotify has just settled a 43 millions lawsuit.
So what is the history of streaming and how did it overtake analogue music formats?
The History Of Streaming
In the years before 1999, the music industry experienced a kind of commercial golden age. That didn’t mean they were making better music—it meant they were selling analogue formats for massive profits because that was the only way to distribute music. Record executives were happy, and customers were as yet unaware that spending $15 on a CD would soon be a thing of the past.
In 1999, Napster was founded and the concept of accessing the music you wanted to listen to online—for free—was born. Record executives quickly panicked. While they pursued legal action against Napster for years, what they didn’t do was quickly recognize that this was a sign of the future of music consumption. Instead of getting ahead of the game and devising ways to distribute music legally and commercially online, they hoped things would go back to the way they were.
Things didn’t, and while Napster lost prominence as a company, it “set the tone for continued opportunities in the realm of streaming music.” In 2003, the iTunes store was founded, and finally people had a way to pay for individual songs and albums in a digital format, without going to a record store. While this was a step forward, it didn’t solve the problem of how to discover music, as users weren’t necessarily willing to pay for tracks on spec.
Streaming Radio Was Born
In the early 2000s, internet radio like Pandora evolved to fill that need. These offered something that records store browsing couldn’t: an algorithm which could predict what you might like based on what your listening habits. With the release of the iPhone in 2007, there was yet another reason to ditch physical music formats forever—suddenly you could carry around all the songs you wanted in your pocket.
Finally, in 2008, Spotify entered the scene. Spotify success is combining many of the above elements. By including digital listening experience, the ability to browse with the help of an algorithm, and the access not ownership mindset, Spotify created a business model of offering a premium, ad-free version which 50 million people use today. It’s amazing to see Spotify’s rise to prominence but the Spotify model is far from perfect for the musicians themselves. It will be interesting to see if that changes.