Spotify Chasing Major Financing Round, But Will Investors Bite?

Spotify_logo-copy1-16Spotify appears to be the victim of it's own success.  The more people listen, the more that they have to pay to the labels. And for a freemium on demand music service, like Spotify, making those payments can become increasingly difficult. That is why, according to multiple sources, Spotify is chasing a major new round of funding.

Spotify has already raised $100 million at a $ billion valuation.  Now they are going back to the investor well, reportedly asking for a similar sum based on a $3.5 billion valuation.  TCV and Andreessen Horowitz have already passed on the deal, according to Business Insider.

In addition to the $3.5 billion valuation, there other reasons that investors are wary of Spotfy  "With most other businesses, if a supplier makes unreasonable demands, a retailer can turn to other providers, says serial music tech entrepreneur Michael Robertson. "Since copyright law gives record labels and publishers a government-granted monopoly, no such option is possible with music. Digital vendors have only two options: Accept the terms or not include those songs in their offering."

Too Big To Fail

In the end, will Spotify be able to raise tens of millions more to keep going?

I wouldn't bet against them. Spotify is still a sexy investment and CEO EK & Co. are smart operators. They've grown impressive market share quickly; and that has value. 

Additionally, in parts of Europe Spotify is already the second largest source of label income after iTunes. For those labels, some of who are part-owners of the music streamer, that makes Spotify too big to fail.

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  1. The biggest worry would be the bottom line. Even with investments if fees & operating costs are outstripping profits there’s going to a time when investors will just give up.
    I mean with services like Pandora and Spotify, I think it’s just a matter of up-to-date companies dealing with record companies that focus too much on unrealistic numbers. It’s not that they’re losing money, they’re asking too much.
    Streaming services like sound cloud and indie music blogs like Sweetest Drip demonstrate you don’t have to go heavy on marketing to be good if you have a good product. The labels should keep that in mind and focus on lowering their cost rather than gouging everyone they touch.

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