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

The argument that subscription services cannibalize sales hit a bit of a snag last week.

Mumford & Sons' sophomore release, "Babel," blew past Spotify's record for streams from an album in a single week. Spotify users in the U.S. streamed "around eight million listens" from the album in its first seven days of release, Spotify chief content officer Ken Parks tells, shattering the previous record by a factor of three. Parks adds that one out of every 10 Spotify users in the U.S. listened to a track from "Babel" last week.

Billboard's FutureSound Conference, takes place November 15-16 in San Francisco.
FutureSound will feature keynotes from the top minds in investment, technology and music today; presentations that will offer specific solutions structured around answering the most pressing questions; and workshops.

"Babel" also sets the biggest debut sales week for an album in the United States this year. The Glassnote Records release sold 600,000 units in the week ending Sept. 30, according to Nielsen SoundScan. The previous high mark for a debut week in 2012 was 374,000 units by Justin Bieber's "Believe." "Babel" turned in the second-best week of any album in 2012. Adele's "21" had the best week of the year with 730,000 units the week she won six Grammy awards.

Mumford & Sons' 'Babel' Scores Biggest Debut of 2012, Tops Billboard 200 Chart

The success of "Babel" could change the tone of the debate about Spotify's business model. Some labels, artists and managers and have been concerned that subscription services -- but mainly Spotify -- cannibalize CD and download purchases. Some popular artists, namely Coldplay and the Black Keys, delayed the release of their most recent albums from Spotify in order to emphasize sales channels.

But there has not yet been any good evidence to suggest subscription services cannibalize album or track sales. As noted in May, first quarter digital sales out of the U.K. indicate a level of healthy growth that is at odds with the concept that subscription services are harming digital download purchases while they increase in popularity. U.S. sales numbers also show digital track and album sales have continued to grow in 2011 and 2012 while the subscription model has dramatically increased its footprint.

Rob Wells, president of Universal Music Group's global digital business, flatly called the cannibalization argument "absolutely bogus" at an IFPI event in London.

"What we are seeing is that all these new services and new subscription packages are exploding without compromising or cannibalizing other revenue streams," Wells said.

Of course, "Babel" was expected to have a big week in any case. The band's debut album, "Sigh No More," has sold nearly 2.3 million units, according to Nielsen SoundScan, and it has steadily grown into a popular touring attraction. Its songs have become mainstays in FM rock rotation. And the group's popularity has crossed genres -- last week CMT aired an episode of "Crossroads" that paired the band with Emmylou Harris.

But Parks, who has been a constant and staunch defender of the subscription model, believes the amount of listening and sharing of "Babel" on Spotify last week contributed to the buzz behind the record rather than take away sales.

"I think it does speak volumes to this debate about whether [Spotify] cannibalizes sales. It's the biggest record of the year," he says.

Head HERE to subscribe to Billboard's free music-business newsletters:
Breaking News, Touring, Top 40, Country and many more.