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

How Does Spotify's First Year Stack Up?
-- Spotify's tenure in the U.S. has reached one year. Is the performance good, bad or mediocre? See how the service compares to other segments and players in digital music.

In honor of its one-year U.S. anniversary Spotify shared the number of songs shared (27.8 million) on the service and the breakdown by platform (Facebook led with 41.5% of sharing). It also revealed that U.S. users have spent 23.7 million hours using the desktop apps introduced in November.

But one number is all that really matters here: 13 billion. That's the number of songs streamed by U.S. users since Spotify's July 14 launch in the U.S. Yes, it's a big number, and it covers both free listeners and paying subscribers.

Here's how Spotify's first year compares to Pandora, Vevo, YouTube and the U.S. track download market over the last year.

- Pandora beat Spotify in songs streamed by nearly a factor of 13. From May 2011 to April 2012, Pandora had 9.69 billion listening hours to U.S. listeners. (That's not the same 12-month period but an exact comparison is not yet possible.) At 3.5 minutes per song, that works out to 166.1 billion songs over a 12-month period. Of course, Pandora had a big head start over Spotify so a big difference is to be expected. But the difference doesn't strike me as too big. One would expect an on-demand service to have fewer streams than a radio service that invites listeners to lean back and do little to no work.

- Spotify topped Vevo (as measured by comScore) in the period of July 2011 to June 2012, 13 billion to 8.3 billion. Include Warner Music Group's videos to Vevo's 8.3 billion and online video comes close to matching Spotify's 13 billion streams. (As Vevo is quick to point out, comScore numbers capture most but not all Vevo activity.) But Spotify is a drop in the ocean compared to YouTube. From July 2011 to June 2012, YouTube (that is to say, Google sites) had 192.4 billion streams, according to comScore.

- U.S. single track sales dwarfed the value of Spotify's 13 billion streams. About 1.31 billion single tracks were purchased in the last 12 months, according to Nielsen SoundScan. At $1.15 apiece (for the sake of simplicity, I assume half cost $1.29 and half cost $0.99) those 1.31 billion downloads were worth $1.05 billion to labels. Labels earn money from Spotify based on a share of revenue (more or less… it's complicated), not per-stream payments. But assuming a very generous (and probably way too generous) 0.5 cents per stream, Spotify paid out $65 million to U.S. labels in its first year. If that seems low, keep in mind that RIAA member labels received $241 million from all subscription services in all of 2011.

So Spotify didn't match up well, right? No, not necessarily. Even assuming 0.25 cents per stream, Spotify's streams were worth 1/32 the value of the single tracks purchased in the last year. But Spotify doesn't look so bad when compared to track sales in 2004, the first full year the iTunes Music Store operated in the U.S. (it launched in April 2003). In all of 2004 U.S. consumers purchased 142.6 million single tracks that returned just under $100 million to record labels.

And it wasn't just Spotify making money in the last 12 months. Rhapsody finished 2011 with more than 1 million subscribers. Muve Music finished the year with 500,000 subscribers.

The last 18 months has seen a lot of growth in the subscription market in the U.S. If you think subscription money is small change, well, you're right. But the download market was small change back in 2004.

How Amazon Increases Digital Sales
-- How does a company increase its digital sales? If that company has built the ecosystem, it might launch more types of mobile devices to spur sales further down the line. In the case of Amazon, the company introduces as many as six new models of its Kindle Fire tablet, according to reports.

More devices would help the Kindle franchise stay competitive and help turn small digital gains into bigger gains. NPD Group's Russ Crupnick told CNBC Amazon's video share grew three points to 13% and its music download share grew one point to 14.4% since the Kindle Fire was released in September.

What Does Facebook's Acquisition of Acrylic Mean?
-- If you're waiting for Facebook to make a move in music, you'll have to wait a bit longer. But if you're waiting for Facebook to improve its mobile experience, this is an acquisition worth noting.

Facebook has acquired Acrylic Software, maker of apps for Apple devices, for an undisclosed sum. The deal appears to be an acquisition of talent: a post at Acrylic's blog says Facebook has not acquired either its products or its services. Acrylic has two apps for Mac and iOS devices. Pulp is a personal newspaper that pulls various feeds and displays them in an attractive layout. Wallet allows users to store and synchronize sensitive information.

By the way, Facebook announces its first quarterly earnings as a public company after the bell this Thursday. Expect to hear the company explain to investors how it is addressing its needs for a better mobile experience and better mobile monetization.
( Acrylic blog)