22 Jan 10Jasper Jackson & George Mitton
Only about 4% of Spotify's users are paying subscribers, indicating that the music streaming firm still faces an uphill struggle to prove its business model is viable. A top music exec recently said the firm needs between 10% and 12% of its users to subscribe to be sustainable. Spotify says it has more than 7m users across the six markets it operates in, but is only willing to say that subscriber figures number "more than 250,000". Taking 250,000 as an estimate, Spotify's subscription rate comes in at less than 4%.
Subscriber figures vary dramatically across Spotify's six different markets. Speaking to The Daily Telegraph, Universal Music International digital VP Robert Wells revealed the firm has exceeded the 10% threshold in France, Sweden, Finland and Norway. But this means that in Spain and the UK - the firm's biggest market - subscriber figures must be lagging well below 4%.
According to Wells, reaching a subscriber rate of between 10% and 12% means Spotify is able to enter into revenue sharing deals with record labels. But if subscriber figures aren't high enough, it must pay for music on a per-stream basis, which is more costly.
Wells says that establishing revenue-share deals means Spotify is "100% sustainable". But if the firm fails to hit the 10% target in countries such as the UK and Spain, there is no guarantee it will survive. Spotify knows it must boost UK subscriber numbers - it recently re-introduced the invite-only system in the UK in a bid to force more users to pay the GBP9.99 (USD16) monthly fee.
Spotify's subscriber average and the disparity between the number of users paying in different territories are likely to raise questions about Spotify's impending US launch. Major record labels are thought to be pressuring Spotify to operate a premium, subscription-only service in the US. They may be worried the US will prove similar to the UK, with the vast majority of users opting for the free option.
However, the US already hosts a number of subscription streaming services that have failed to take off. Spotify has used its mixed ad-funded and subscription model to become the largest subscription streaming service in Europe, but may not be able to make the same impression in the US without the free element.
Spotify CEO Daniel Ek has said he hopes to create a music streaming subscriber base for Spotify that is more than five times as big as any currently operating in the US. Rival service Rhapsody has around 700,000 subscribers in the country, and Ek concedes it is likely to take a couple of years to build up to such an ambitious figure.
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