Spotify Raises $100 Million – Plans Expansion Into U.S.
Spotify, Europe’s largest Internet music service, announced today that they have been successful in raising $100 Million in venture capital as they continue to ink record label deals and get ready to expand their service into the United States. The news comes on the heels of Pandora announcing their plans to go public thus raising $100 Million of their own. This would put Spotify in direct competition with not only Pandora and Slacker, but Sirius XM as well.
One popular misconception is that these bigger Internet radio services will die off because their business model is “free” radio with supported advertising as the primary revenue driver. What many fail to realize is that the new royalty deals make it more beneficial for Internet Radio services to become subscription based, which is exactly the move Pandora and Slacker have already shifted to.
If you look at any marketing material from these companies you will quickly see the push to a modest subscription over the “free” service. The benefits that come with the subscriptions represent a very good value for consumers. For a small monthly fee users can avoid advertising, get unlimited skips, and even get access to use over smart phones.
Spotify, valued at about $1 billion pales in comparison to Sirius XM, but among the advantages Spotify could have is a legal presence to do business in both the U.S. and Europe. Simply stated, they can reach a bigger audience without the hassles of creating accounts with a U.S. address. Spotify creates a need for subscription in a few ways. If you want to use your phone to listen you need to have their Premium service which charges a monthly fee. Tactics such as this seem to be the trend in Internet Radio. In essence the free service is simply a teaser to get you onto the platform. The end game is to get paying subscribers.
For some investors in SIRI the tendency is to downplay these services as companies that present little threat to satellite radio. To make such an assumption is foolish. These Internet Radio companies are adapting to market conditions faster than many realize, and with smart phones they have been able to proliferate the automobile dashboard in short order, in many cases without having to negotiate their way into the car. The very fact that these companies are able to raise substantial funding should be enough for SIRI investors to begin to take other services seriously. That being said, Sirius XM still has the best content available in audio entertainment with sports, talk, and news that other services simply can not yet match.
Certainly this Spotify news will put a bit of a damper on the Pandora IPO. It will also put some pressure on Sirius XM to deliver features consumers demand in their Satellite Radio 2.0 platform which will be released later this year. The bottom line is that the audio entertainment landscape has some powerful players in it and investors in the sector need to keep abreast of the ever shifting atmosphere. Stay tuned.
Position – Long Sirius XM Radio
What are these royalty deals?
Do internet radio based companies get preferential treatment in regards to royalty fee structures, while Sirius get the middle finger salute? How does that work?
Spencer Osborne:
“What many fail to realize is that the new royalty deals make it more beneficial for Internet Radio services to become subscription based. That is exactly the type of moves Pandora and Slacker have already shifted to.”
It would be helpful if we dealt with the facts . . .
“The basic Pandora service is free, with most of its revenue coming from advertising . . . 86% of Pandora’s revenue came from advertising in its fiscal year just completed Jan. 31.”
http://www.usatoday.com/tech/n.....-ipo_N.htm
“We think that there is an awful lot of people who like the, Slacker, Pandora, Last.fm, iheart services because it’s free. Nothing is really free because the way they make their money is they make you listen to commercials and a lot of that IP content as they get and try to get more and more revenue are going to be running more and more commercials. And again, we like our business model, which is principally subscription driven as compared to the model of where you’re offering service for free and running commercials, that sounds an awful lot like Terrestrial Radio.”
Mel Karmazin, 2/15/11 Conference Call
http://seekingalpha.com/articl.....e/2529…ipt?part=qanda
Roadkill…..
The shift to subscription with Pandora and the like has taken place over the past year. Anyone who fails to see this shift is a mindless idiot! Simply stated these companies WILL BE HERE AND STAY HERE!
If Slacker can get me as a regular listener because their music service blows away Sirius XM, then imagine how much it appeals to someone who is not a fan of Sirius XM like me! Think about that. I REFUSE to blow smoke up peoples collective asses. If there is a company out there that beats Sirius XM I am going to talk about it. If Sirius XM decides to ignore implementing better features then they will lose customers to other service.
The new royalty deal dictates that these companies MAXIMIZE revenue. By doing this they pay a cap of 25% of revenue instead of a per song/per listener fee.
As for Karmazins comment…..He is pumping so much shit in that statement that we all need to buy hip waders! Anyone who believes what Karmazin is saying there on blind faith is a bigger idiot than I could possibly imagine!
A modest subscription fee to ANY of these services gets rid of EVERY commercial! So is their business model putting on more commercials or trying to get people to subscribe? The answer is obvious to anyone who looks at it realistically.
Honestly….It amazes me how far people put their head in the sand! If Pandora wanted to cram ads down your throat for more revenue they would NOT offer a premium service that gets rid of all of the advertising!
You’re lost buddy or you are 18 years old. Slacker and Pandors’a following consists of a bunch of broke, will subscribe to anything as long as it’s free. Wait until they have to start paying or listening to more commercials than music, because that’s what they will have to do do raise revenue and profit. Content, can you say “ZERO”. Then all the snot nose will leave like rat’s on a sinking ship the the next freebee music access venue.
Lost????
I am one of the owners of this site and have had satellite radio since the beginning. I do quite well, and am nowhere near 18. I am a realist and man enough to admit that these services do have features that blow away Sirius XM in terms of music listening.
You obviously do not know the demographics of Pandora and Slacker because you are pulling assumptions out of your posterior left and right.
I know who you are. Big freekin deal.
Your argument in the past against Slacker, Pandora and the like has always been the fact that they lack content they can’t compete. Now you sing a different tune just so you can write some fluffed up BS article. Now it’s about listening to music only. Make up your mind, buddy. I’ve followed you for awhile, you’re this way one day that way the next. “Your all hat and no cattle. You’re not kidding anyone about what your real motives are.
geronimo46
“I am one of the owners of this site and have had satellite radio since the beginning. I do quite well, and am nowhere near 18. I am a realist and man enough to admit that these services do have features that blow away Sirius XM in terms of music listening.”
What are his real motives? You say he is not kidding anyone but, I have no idea what you are referring to.
Shouldn’t peoples opinions change as time and industry variables change? I would hope that whatever the author thought was true a few years ago would have changed as the landscape changed.
If I am missing something and I am being misinformed, please enlighten me. What is his agenda and why am I the last to know about it?
The question maybe are the internet radio’s services worth what they are asking to subscribe. I guess we’ll soon find out when pandora becomes public and we can see the trend of free converting to paying. Mel also talked about sirius/xm having a service like the internet radio providers. Do you think he was just blowing smoke on that one too? It seems to me if sirius/xm can provide a pandora-like service plus have the best pipes and content we’ll be more than fine. I’m a little confused by your take on Mel. If he’s that much of bull slinger why be invested in his company? Further more, can the ceo’s of pandora, slacker,etc.. be trusted anymore with their views?
Sirius is ESPN….That is the model and that model works once you have the content.
It does make it hard to read your stuff Spencer when you make claims in direct opposition to a company’s business filing.
Such is the case of Pandora when you make these subscription claims while the Pandora itself does not foresee a significant change in their subscription vs. advertising model. It says so directly in their filing.
It does make it hard to read your stuff Spencer when you make claims that directly contradict a companies actual filing.
Such is the case with Pandora. We already know they make the bulk of their money off advertising and not subscriptions. What we also know from statements from their own filing is they DO NOT EXPECT THAT TO CHANGE.
Yet every email i receive from Pandora is all about subscription upgrades, gifting subscriptions, etc.
The shift they made has been over the past year or so. Look at their own web page and you can see the way they want to market their service.
This is NOT rocket science. The premium tier would not be made available if they did not want people to gravitate to it.
Spencer, it is not rocket science that a company wants people to subscribe to their most expensive tier. Of course they want more subs and thus are going to market to get more subs, but they have already admitted they don’t believe they are going to get them.
Do you remember the Arbitron study on Sxm listeners? Sirius gets a more educated, wealthy, and longer listening population.
Pandora is the higher end of the fleeting fleecing of free music that the majority of non payin youth gravitate to. In the end Pandora does not have the content nor distribution abilities to maintain high end Subscription numbers.
Spencer,
Can’t really believe the things you say. In an earlier post, you say that you are not a fan of Sirius. Guess that I am confused as to why you write about it. To help out people? If you are, admittedly, not a fan, can we trust the things that you say?
I’m starting not to.
Going south….
Perhaps I could have worded that better…I am a huge fan of sirius XM. What I was saying that even a huge fan like me gravitates to services like slacker because the do a better job on customization of channels. If a huge fan of sirius like me uses these other services imagine what someone who is not a fan will do.
Thanks for the reply. Mel said on the call that if customers want a Pandora type of service, they could give it to them.
I appreciate your clarification.
Some of us feel that sirius/xm could do a much better job when it comes to keeping up with the latest tecnology. At least from a business stand point (sub. model) for radio they might be leading the way. We have to keep in mind sirius/xm went to hell and back. A lot of people/companies would have cracked under that situation. Now we have analyst upgrades. Maybe after your quarterback leads you to the playoffs we should give him a little benefit of the doubt.
There are 2 markets out there – people who don’t want to spend money and people who do. The Internet radio model will be very popular with people who don’t want to spend money. However, how attractive is that going to be for advertisers? If someone can’t handle $10 or $15 a month (I’ve seen pandora customers complaining about a $0.99 fee, really?) is this going to be a sucessful group for advertisers to target? I forsee alot of Divorce Lawyer and Payday Advance ads. Not to mention the whole collection side of the business, they’re going to need quite the operation to be making all those calls for $0.99 past due balances. There is alot more to a sucessful business than just the product. I’m sure Internet radio will develop a nich market, and personally think it will be good for SIRI as it’ll keep the penny pinchers away.
It’s looks to me that slacker pandora and all the others are changing their model from advertising to subscription based. They understand there is more potential for profit from subscriptions,so they are coping Sirius; however, they are late to the game. 22 million subs is a huge headstart.
Long siri
I know SIRI is available in English; perhaps Spanish also.
I wonder what language SPOTIFY is in. If coming from Europe it could have multiple languages, including English. I wonder how popular foreign languages would be to the USA population in general, ie, other than visitors and immigrants.
I know that English is spoken in many parts of the world and those seeking to learn it, might find listening to English on SIRI radio interesting.