Major Labels

Suicide Notice: Would A U.S. Launch Kill Spotify?

image from Had Spotify launched in the U.S., recent reports argue it would've bled them dry. Allegedly, the major labels demanded such large minimum guarantees that Spotify began to question if the financial risk added up. Since the company is nearing profitability in Europe, technology writer Sarah Lacy contends that it might be best if they skip coming stateside and build their business. Rather than giving into label demands, Lacy believes that Spotify should "retreat, build in other countries, perfect its model, get to profitability, and then come back to [the U.S.] market…"

After all, she asserts, one thing that you can count on is that the labels will get weaker and Spotify will get stronger. There isn't enough change in the market yet.

"Use your international headquarters as an advantage, not a liability," Lacy says.

She also recalls comments from an interview she did. A Spotify board member by the name of Klaus Hommels told her that "he believed Spotify may be the venture industry's last-ditch effort to build an online music company." Klaus in fact "told the labels in negotiations that if they opted instead to drain Spotify's venture cash and leave it for dead the way they have to so many others, they may never get another hot upstart to back." If Spotify gets murdered, Apple would rule the day.

Google This

This is, of course, the result that the major labels claim to be fighting extensively.

They don't want Apple to dominate the market and be able to call the shots. Yet they refuse to empower a company capable of taking inertia from Apple. Sure, we have the much awaited Google Music, but if the past is a indicator, any company that the major labels endorse likely won't generate a remarkable music service.

Google may create a music service, but will it be a game-changer? Probably not.

Some people have argued that Google's offering doesn't need to be spectator, as that's not what people want. Generally, they want to buy music through Google and store their music in the cloud. They're not looking for the next stage of the digital music revolution. Google will scoop up market share from Apple by way of making song buys actionable right from their engine. They can do all this without challenging the record industry status quo. As expected, major labels like this.

Fans buying music, not getting torrents. A result that Spotify could produce too. 

Suicide Mission

However, Forrester research analyst Mark Mulligan suggests that a few of the major labels may have set their advances so high that it would be impossible for Spotify to meet their demands without endangering their path to profitability. In other words, in a weird way, we should rejoice that Spotify didn't launch, as it could've been a near suicide mission. As soon as we got Spotify, we could've very well lost Spotify too. Sadly, Europe may be the safest place for them now.

Spotify might be safe, but, one day, the record industry may wake up sorry.

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  1. Keep in mind that Google does well with companies that they acquire, e.g. YouTube, and not as well with concepts that they pioneer, e.g. Wave.

  2. Nice Read.
    Could you please explain this: “Allegedly, the major labels demanded such large minimum guarantees that Spotify began to question if the financial risk added up”.
    Understanding how Spotify works in the background is a real brain teaser for me.
    If you could write a post shedding some light on how music-streaming services function in terms of generating revenue and retributing the money they owe to copyright collective societies I would be grateful.

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