Spotify's P2P music-streaming service has yet to reach North American shores, but details continue to emerge about investors in the promising Swedish start-up, already valued at around $250 million. Chinese plastics, real estate, electricity, shipping and communications baron Li Ka-shing now owns a minority stake in Spotify, as his foundation confirmed to Forbes on Thursday.
Among other things, Li could be planning to integrate Spotify service into his telecommunication empire including "3," his cellphone company.
Li's investment adds an undisclosed sum to Spotify's war chest, which it will need to satisfy licensing requirements for its U.S. launch and the iPhone app that would complement it.
The powerful nature of Spotify's service (it differs from Pandora by playing on-demand music, differs from iTunes by not selling songs, and differs from Rhapsody by not requiring up-front subscription payments) means it could pay a premium to the labels.
As it stands now, Spotify is free on its basic level. If music fans in the countries where it's available can put up with a few ads each hour, it lets them treat more than 6 million songs as if they were stored on their own computers. Spotify co-founder Daniel Ek pins his hopes for monetization mainly on allowing users to access their playlists from their mobile phones. The thinking is that once you set up playlists on your computer, you'll pay to access them on the go.
Spotify's obstacles are significant, considering what it charges for what it offers. Imagine what Apple would have to pay the labels to offer a free, ad-supported version of iTunes that includes all the labels' music, charging a premium only for the mobile feature and increased bit rate and other niceties. This is why Li Ka-shing's investment is important to Spotify — it could take a lot of green to stay in the black, while keeping the labels satisfied.
Labels are the other significant stakeholders in Spotify. All four major labels and super-indie Merlin together own 17.3 percent of the company, either in return for actual money, as advances on royalties, or as some combination of the two. Wired.com highlighted a major problem inherent with this strategy in May of 2008, when News Corp. gave the labels equity in MySpace Music in return for the right to use their music. (It's important to note that indie-aggregator Merlin succeeded here where it failed with Last.fm.)
The problem with exchanging equity in return for the right to play music from certain labels is obvious: It means bands must sign to a major label if they hope to receive equal compensation from start-ups like Spotify. This state of affairs runs counter to everything the internet promises about dis-intermediation, and returns us to the days of only certain gatekeepers controlling access to culture.
Say Microsoft buys Spotify for four times its current valuation, or $1 billion. All four labels, the indies that belong to Merlin — and now, Li Ka-shing — would see a big payday, and would presumably filter some of that money through to the artists they represent. Meanwhile, indie bands and labels whose music is included in the service but who lack equity deals would only receive whatever they're owed under their standard licensing agreements.
See Also:
- U.S. Exclusive: Hands-On with the Spotify iPhone App
- Spotify $50 Million Closer to U.S. Launch
- Spotify Set to Take America by Storm
- Spotify Becomes Platform, Makes U.S. Music Fans Even More Jealous
- Note To Music Industry: Portability Is Key to Spotify Profits
- Spotify's Android App Should Frighten Apple
- Contribute to Our Crowdsourced Spotify Playlist
- End Game: Spotify on the iPhone
Photo: Klaith Zhang
