Spotify's Growth Spurt

The streaming giant is booming. But rivals are looming, the company is still bleeding cash and Wall Street is watching

Daniel Ek has reason to feel confident. The 31-year-old Swedish CEO of Spotify announced that his streaming music service now has 10 million paying subscribers globally, according to sources, and 3 million in the United States. That U.S. showing may help quell criticism that his company has been slow to catch fire in the largest music market in the world. For $9.99 a month, subscribers now have access to the work of 1.1 million artists and more than 20 million songs.

The growth has been fueled in part by Spotify's social strategy - it has been integrated into Facebook from the start - and its attention to mobile devices. "We've seen a big uptick in growth since we've launched our free mobile service in December. More than 80 percent of all people that sign up are now with mobile," says Ek, who induces free users to subscribe by allowing them to listen offline and avoid ads.

As Ek surveys the increasingly competitive streaming market, he likes what he sees. He won't comment on reports that Apple is in talks to buy Beats Electronics for $3.2 billion - a move that could potentially supercharge a streaming rival, Beats Music. But he is dismissive of the idea that spending tens of millions on TV advertising - as Beats Music did early on - is the best way to gain subscribers. "Our marketing is not about spending hundreds of millions, because we don't need to," says Ek, who launched his first company at the age of 14. "The bigger you are, the faster you grow."

Still, not all of the numbers are quite so rosy. Thus far, Spotify's growth - indeed, the growth of the whole streaming sector - has not been able to make up for the revenue lost as the music downloads market declines (it's down 13 percent in the first quarter, according to Nielsen SoundScan). Universal Music Group, the world's largest music company, reported a 2 percent dip in its first-quarter financials for that very reason.

Without rapid growth in paying subscribers, Spotify will continue to bleed cash - a factor that could complicate its flirtation with plans to go public this fall. (The company has lined up staff to handle Securities and Exchange Commission filings and has secured a $200 million credit line with Wall Street banks.)

"You have continued interest from some investors looking for growth, so for Spotify - if they have that story to tell, with their focus on mobile - there would be a lot of interest in their stock," says Eric Jackson, founder of the investment firm Ironfire Capital.

If Ek is worried about the increasing competition, driven by the Apple-Beats deal talks and Twitter's flirtation with buying SoundCloud, he doesn't show it. He believes giving away music to attract fans is working - and there's no end in sight. "Music has always been free with radio," says Ek. "In our view, the more they listen to free music, the more they will pay for it."


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