Spotify: How a Swedish startup transformed the music industry

As the popular music streaming service goes public today, Spotify is set to continue to revolutionize the
music business. But who ultimately profits?

Eleven years after it was founded, Spotify finally goes public on April 3. As the company CEO and co-
founder Daniel Ek explained on his blog a day earlier, Spotify seeks to put itself "on a bigger stage" by
listing on the New York Stock Exchange.

"Spotify is not raising capital, and our shareholders and employees have been free to buy and sell our
stock for years ... The move doesn't change who we are, what we are about, or how we operate," he
wrote in the blog post.

Analysts expect Spotify's first day on the NYSE to be volatile due to uncertainty as to whether the
company - which has lost more than 2.4 billion euros ($ 3 billion) since it started - will be the next
corporate chart-topper.

"One of the big questions about Spotify is whether they can take it to the next level like Netflix has," said
Daniel Morgan, senior portfolio manager for Synovus Trust. He says the video streaming service has
created a hugely successful subscription-driven franchise with "spectacular returns for the company
investors."

Music industry disrupter

Spotify was established in 2006 by Ek and Martin Lorentzon, two Swedish entrepreneurs who have
since become billionaires. It was centered around the idea of a legal platform to distribute music online
at a time when illegal file sharing sites dominated this market segment.

Daniel Ek, one of Spotify's co-founders

Spotify's popularity marked the music industry's shift from physical to digital, to embracing the internet
rather than fighting it, with the platform has helped to spread the medium of streaming services in
many parts of the world.

Spotify says it currently has 159 million monthly users, including 71 million paying subscribers. Its value
is estimated to be as much as 19 billion euros ($ 23.4 billion).

Nonetheless, many competitors have since emerged, includingApple Music, Amazon or the local players
such as Deezer or Saavn, which focuses on Hindi Music. They all aim to win a slice of the music
streaming market, which grew by 60.4 percent in 2016 according to the annual report by the
International Federation of the Phonographic Industry (IFPI). That year, Spotify controlled 44 percent of
the overall subscriber share.

€ 32,500 for 10 million streams

But while Spotify is undoubtedly the driving force of a turnaround in the music industry, the service has
not posted a profit since it launched.

The company with full-year revenue of more than 4 billion euros ($ 4.95 billion) in 2017 said it aimed to
boost its subscriber numbers from 30 to 36 percent this year.

American singer-songwriter Taylor Swift pulled out all her music from Spotify over fees, saying that
"Music shouldn't be free."

Revenue is one of Spotify's key problems: The service has repeatedly come under fire for obscuring how
much it actually pays to artists, which has caused the public question whether the service is fair.

Nashville-based singer-songwriter Perrin Lamb said in 2015 that he received $ 40,000 (€ 32,500) in
royalties for 10 million streams of his single "Everyone’s Got Something," making the average per-
stream payout around € 0,0032.

In 2016, Forbes magazine quoted a report showing that there is no set fee for downloads, and that per
play revenue allocation is highly variable, meaning a reliable "average" is almost impossible to ascertain.

Same old song

Spotify has not only changed the way artists are paid for their music - but also how they create it. With
Spotify's focus on playlists, it has become much easier to find new music; but it has also made
traditional albums almost irrelevant.

Writing in The Guardian last year, music business and technology journalist Eamonn Forde said that
recording companies tend to create single multi-format songs to "keep the plates spinning" in the
Spotify age. The goal is to get more revenue from one composition, he noted, with Spotify's number
one ranked song in 2017, "Despacito," having billions of hits due to the many different versions and
remixes that have been released.