Spotify is a Swedish music, podcast, and video streaming service that provides digital rights management–protected content from record labels and media companies. It is available in most of the Americas, Europe, and some countries in Asia and Oceania. Music can be browsed or searched by artist, album, genre, playlist, and record label. Spotify was launched in September 2008 by Swedish startup Spotify AB. As of August 2016, Spotify had more than 100 million active users and about half a billion registered users. As of September 2016, Spotify has 40 million paying subscribers worldwide, up from 30 million paying subscribers in March 2016. Spotify Technology S.A. operates as the parent company, registered in Luxembourg, while Spotify AB handles research and development in Stockholm.
As of August 2016, Spotify provides access to over 30 million songs, with more music being added approximately every day including albums, EPs, and singles. Users can search for artists, albums, titles, labels and genres, and access songs from both major and independent labels. Some artists decided to opt out of Spotify. Additionally, some artists withdrew from specific regions because of licensing restrictions. The desktop app allows music to be imported from iTunes, while the main three apps (iOS, Android, and Desktop) allows downloading songs to listen to offline. Users can download songs up to three devices with a song limit of 3,333 with a total track limit of 9,999 if the device song limit is reached on each device. Users can create and share playlists, or edit them together with other users by making that playlist a collaborative playlist.
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….But Space is Getting Crowded. Revamped music services from tech giants are coming on strong, led by Apple Music, followed by Alphabet’s YouTube, and Amazon’s Prime Music. But unlike Spotify, which is a pure-play music company, the driving purpose of these companies is to reinforce their respective brands, pull users into their respective ecosystems, and ultimately sell their core products.
Product Update. Spotify has expanded its product offering, in step with its competitors. While Apple continues to maintain its “walled garden” of only providing its Music app on Apple TV, Spotify is partnering with other technology companies with a living room presence. In Q1 2016 Spotify became available on Android TV and Amazon Echo, expanding the Spotify use cases from mobile and desktop to other media formats. In addition, the company announced its video initiative and deepened its tie-up with Facebook.
Royalty Payments Remain a Hurdle to Profitability. Spotify distributes roughly 70 – 75% of all the revenues that it receives back to rights holders – labels, publishers, distributors, and independent artists. We expect Spotify to leverage its growing scale and constructive relations with the record labels to negotiate lower royalty rates and move toward profitability.
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