Spotify drove a large part of the 75% jump Universal Music Group achieved in 2013 in subscription and streaming revenue, according to a source familiar with the music group’s financial statements.
During the conference call, Vivendi reported that the company’s digital streaming and subscription revenue grew to 450 million euros ($618 million) in 2013, up 75% from the 257 million euros ($353 million) that channel had generated in the previous year.
The digital music streaming company, which now has more than 2 million U.S. paying subscribers according to sources, has been under pressure from high profile figures like Radiohead’s Thom Yorke for underpaying artists for music. Yet it is also seen as having a crucial role in helping music labels offset an eventual slowdown in download sales, currently dominated by Apple’s iTunes store.
Universal Music, which announced its annual financials on Tuesday, said digital sales overtook CD sales for the first time in 2013. While it is well known that CD sales have been in decline for several years, the decline of download sales is a much more recent phenomenon in the last couple of quarters. Major music companies like UMG, Sony Music and Warner Group — who have all taken minority equity stakes in Spotify and other streaming services — are betting that subscription services will start to grow quickly to help offset an expected drop-off in download sales.
Spotify has been the posterchild for all that’s good and wrong about streaming services, although it now has high profile competition in the U.S. from Beats Music, a spin-off from Jimmy Iovine and Dr Dre’s Beats Electronics. Founded in Sweden, Spotify is the largest digital music subscription service in the world with around 24 million users at the time of its last announcement over a year ago. In Europe, specifically France, Deezer is also a significant player. Both Deezer and Beats have received significant investment from Warner Music Group’s billionaire owner Len Blavatnik.
While the numbers and revenue base are small today, executives at music companies are hopeful that in the long term the recorded music industry will benefit significantly from being restructured as a regular recurring revenue business with monthly subscription from fans rather than buying songs and albums intermittently.
In a sure sign the majors are betting more heavily on Spotify and its rivals, in December the music companies agreed to allow the digital service to widen its funnel to bring in more music fans by increasing the amount of free music available on Spotify’s mobile service.
Additional reporting by Ed Christman.