Spotify made headlines last week following its December 11 announcement
that it now offers mobile users free on-demand streaming access. With the change, tablet users can listen to playlists and artists of their choosing, replicating an experience once available only using a desktop computer. (Smartphone users can also create playlists with this change, but they must listen to their playlists in shuffle mode.) Though these free options still require that listeners tolerate advertising interruptions every few songs, the $10-per-month fee that Spotify mobile users were once required to pay to access on-demand listening features has been removed, presenting a free, tangible benefit over competitors like Pandora
(NYSE:P), iTunes Radio from Apple
(NASDAQ:AAPL), All Access by Google
(NASDAQ:GOOG), and Xbox Music from Microsoft
The news comes on the heels of Spotify’s latest round of funding, including a $250 million investment by Technology Crossover Ventures, resulting in a current company valuation of about $500 million. Despite that success, Spotify’s 24 million active user base still pales in comparison to Pandora’s
72.4 million active users. Regardless, the strategic move will likely fuel Spotify’s acquisition of more paid subscribers. Spotify’s vice president of product Charlie Hellman recently told Mashable
that "we've found that the more stuff we give users, the more users are willing to pay us.”
Spotify's business model
is designed so that rights holders (labels, distributors, and publishers, who in turn, compensate artists), earn about 70% of all revenue, making it a more artist-friendly service than Pandora
according to most arguments. So the latest news should create an even greater divide between Spotify and its other streaming-music competitors. That said, the biggest threat that both Spotify and Pandora will face in the future may not come from the usual suspects, but rather, a name not yet known to many listeners in the United States.
Enter Deezer, the market leader for streaming music in Europe. The France-based company is largely backed by Len Blavatnik, who owns Warner Music Group, and is rumored to be planning an entrance to the US market in 2014.
What can it offer listeners that Spotify, Pandora, and others can't? If it continues to employ the strategic-partnership strategy that has fueled it to acquire more than 5 million paid subscribers since the company was founded in 2006, its success in the States could have less to do with what
it offers and much more to do with whom
it links up with.
Since 2010, Deezer’s growth has been largely dependent on strategic partnerships with mobile providers like French Telco Orange, Orange UK, Belgium’s Belgacom, and T-Mobile in Austria, who bundle the costs of the music service with their customers' wireless contracts. Deezer has grown nearly as quickly as Spotify, and that's without serving listeners in two key markets: the United States and Japan. In early November, Deezer CEO Axel Dauchez reported that in just one year the company had more than doubled its pace for attracting paid subscribers.
Most recently, Deezer announced
that discounted, premium services would be made available to customers of Asia’s mobile operator M1. It also formed an international partnership with Facebook
(NASDAQ:FB) in 2011, and released an integration with Google+ earlier this year. According to Dauchez, nearly 75% of Deezer listeners use the service on mobile devices. (Similarly, Pandora also cites that about 80% of its music is streamed over mobile/connected devices.)
Though it’s tough to discern whether Deezer’s paid subscribers listen based on preference for the service versus the fact that they access it by way of the deal they receive with their mobile package, the company appears to be succeeding by leading with a different foot than its streaming competitors.
Deezer will hit the United States has yet to be confirmed, but that it will do so by way of some sort of partnership is almost certain. In June, Deezer told Billboard’s Lars Brandle
: “We are considering the US and are looking for the right strategic partner to go with. Perhaps it’ll be an established, existing big company in the US which will make us significantly the biggest in the country. "
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