Spotify's P2P music streaming service now appears to be worth $250 million to investors, even before its release in the world's biggest music market, the United States.
Hong Kong tycoon Li Ka Shing, British venture capitalists Wellington Partners, and other parties have invested $50 million in its latest round of financing, according to the Financial Times.
The big question about Spotify still is when will the desktop version launch in the states? But these investments answer that question, to a certain extent.
The big four labels often demand large up-front licensing fees from online music start-ups as advances on money the companies may or may not eventually earn. By raising this much capital, Spotify has a war chest big enough to satisfy copyright holders and open the New York ad sales office it is planning.
A TechCrunch source claims that all four major record labels were already Spotify shareholders in advance of this latest deal, and that they received the same share prices as these other investors did (with the exception of one label, which inked a deal earlier). If TechCrunch's source is right and all four labels are on board with Spotify, co-founder Daniek Ek's prediction that the service will launch stateside by year's end appears to be on the money. Those up-front licensing fees could have been paid with equity (Imeem pursued a similar strategy).
Spotify co-founder Daniek Ek told us last month that he was "very comfortable" that the labels would want to see the service launch in the US — possibly in reference to those very deals.
The other big Spotify question is whether Apple will approve its excellent iPhone app, which among other things, allows up to 3,333 free Spotify songs to be cached on iPhones and iPod Touches for on-demand playback, and does not include "buy" links to the Apple store.
Some suspect that Apple will want to keep Spotify — or at least its caching feature — out of its store, even though Apple would receive a healthy percentage of any Spotify subscriptions purchased through iTunes.
If Apple resists Spotify or denies the app outright, the labels — who own the music iTunes sells — could exert pressure on Apple. They're unlikely to shut down the iTunes store by pulling their catalogs, but the fact that those iTunes contracts must be re-negotiated periodically would give the labels, in their role as Spotify shareholders, a valuable bargaining chip.
Spotify, still only officially available in Europe, has 75 employees and over two million users in Britain, where it has penetrated the most. It claims to have five times the usage levels of any other music service in countries where it is available, uses a peer-to-peer architecture to reduce streaming bandwidth costs, and runs on 95 percent open-source software, according to Ek.
He told us last month that he wouldn't consider selling Spotify if someone offered him $200 million. Now that investors have valued the company at $250 million — even before its U.S. launch — his decision already looks like a canny one.
See Also:- U.S. Exclusive: Hands-On with the Spotify iPhone App
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- Contribute to Our Crowdsourced Spotify Playlist
- Spotify's Android App Should Frighten Apple
- Note To Music Industry: Portability Is Key to Spotify Profits
- End Game: Spotify on the iPhone
- Spotify's Restrictions Can't Keep the Music Nerds Out
