Spotify to Apple: You want a music war? You’ve got one
You can almost hear the clanking of armor and the clash of swords from Spotify as it gears up to go head-to-head with Apple for dominance in the streaming music industry. And since every army needs a hoard of gold to finance such a battle, the company just boosted its coffers with a massive $526 million financing round that gives the money-losing venture a theoretical market value of more than $8 billion.
That means Spotify is worth more than twice as much as Pandora — at least in the rarified, non-public marketplace that is the venture capital industry. As one wag put it on Twitter, clearly the answer to a decade or so of music piracy is to just get VCs to subsidize free music for everyone.
Spotify also announced that it has about 75 million active users, of whom 20 million pay for the service. That’s twice as many paying users as it had just a year ago, and the total user number puts it within shouting distance of Pandora, which has about 85 million active users. Spotify also said in its blog post that it has paid out a total of more than $3 billion to artists in the form of royalties.
The new funding round suggests that the online music-subscription business could be solidifying into a two-horse race between Spotify and Apple. And while Apple is clearly the larger of the two — with more than $175 billion in cash on its balance sheet, as well as existing relationships with all the major record labels — its size and dominance could actually make it harder for the company. As evidence of that, regulators in two states are already investigating Apple to see whether it put pressure on its music-industry partners to not play ball with competitors like Spotify.
Investors in Spotify’s new round include a range of VC funds from the U.S., as well as Britain and Canada. But one name that stands out from the rest: Scandinavian telecom operator TeliaSonera AB invested $115 million in return for a 1.4% stake. As more music consumption goes mobile, it could be a key strategic partner. And Spotify’s new cash hoard could come in handy for more than just a music battle: the company has also said that it wants to expand the service to include video as well.