Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth
Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth

Spotify is planning launches in Italy and Poland, judging from job postings at its web site, and according to a report Friday it's considering a launch in Japan in early 2013.

The company has recently posted job openings for growth managers in Milan, Italy and Warsaw, Poland, who will be responsible for launching the service and managing long-term user growth in those respective countries. Both positions report to the director of international growth in Berlin.

A report Friday morning at paidContent claims Spotify is considering a launch in Japan around January. A Spotify spokesperson declined to comment.

Given the nature of the market, news that Spotify is eying Japan comes as something of a surprise. There may be no other large market that would require more time to develop and more time to educate consumers on the service's value proposition. One would imagine converting American consumers would be tough enough.

Japan is the world's second-largest music market, the first in physical sales and a distant second in digital sales behind the U.S. Consumer awareness of subscription services must be brutally low and Spotify would have to build the market almost entirely on its own. Only Sony's Music Unlimited service, launched in July, operates in the country. Napster Japan, the first subscription music service in the country, shut down in May 2010.

Music Unlimited has a couple strengths in the market: Japan is Sony's home base and Music Unlimited is primarily a value-added feature for Sony consumer electronics. Those factors allowed Sony to soft-launch Music Unlimited in July whereas another service would likely need to make a larger initial investment.

Mike Aragon, Vice President & General Manager, Global Digital Video and Music Services at Sony Network Entertainment, told Billboard.biz the Japan launch was "on par" with the U.S. launch. That was especially encouraging considering the service launched only with international repertoire and will add local repertoire over time, he said.

One problem -- although it's getting better -- is Japan's smartphone penetration. Only 24% of Japanese consumers owned smartphone phones in June, according to comScore (it's about twice that in the U.S., the U.K. and Sweden). Subscription services derive their value from smartphones because they charge more for mobile access. So while Music Unlimited can use Sony hardware -- PlayStation and DVD players, for example -- to make inroads, Spotify would need to either wait for smartphone penetration to increase or drive premium subscriptions through partnerships with TV and cable companies.

Spotify will have an easier time entering European markets where subscription services already operate.

Poland appears to be wide open for streaming services. The $4.3 million digital market was 25% subscription services in 2011, according to the IFPI. The small size of the digital market indicates there is not much of an entranced download market to face. The trade value of the country's physical market, which accounted for 86% of recorded music revenues in 2011, has only fallen slightly to $70.3 million in 2011 from $77.5 million in 2007.

Other subscription services operating in Poland are Deezer and Muzodajnia.

Italy has a music market primed for streaming services. The rise of single track sales has decimated the CD market. The trade value of the physical market has fallen from to $164.7 million in 2011 from $322.7 million in 2007. Digital revenue has grown to $47.7 million in 2011 from $26.7 million in 2007.

Already available in Italy are Deezer, Music Unlimited, Rara.com, Feezy, Play.me and Samsung Music Hub. Some Italian mobile consumers can use Cubo Musica, a subscription streaming service with packages of MP3 downloads.

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