Spotify, the very popular music streaming service, is moving ahead with its aggressive growth strategy, and it looks like it’s raising more money to do it: a report today in the Swedish financial paper Dagens Industri says that the Stockholm-based startup is looking for backers at a 35 billion kronor ($5.27 billion) valuation.
It further reports that the money that is being raised may come in the form of a loan rather than an equity investment, with the two co-founders, CEO Daniel Ek and Spotify’s two founders CEO Daniel Ek and chairman Martin Lorentzon reluctant to give up more of the company to investors.
We have reached out to Spotify to confirm the report, and are trying to figure out what size this latest round may be, and will update as we learn more.
To put this valuation in context, last November the company had an estimated value of $3 billion around the time that it closed a $100 million round. About half of that last round came from Goldman Sachs, with Coca Cola taking 10% and Fidelity 15%. To date, Spotify has raised $288 million.
Spotify, which now has 6 million paying users and tens of millions more who use its free, ad-funded services in 28 countries across desktop and mobile devices, as well as through more traditional music gear, is at a crucial crossroads in its growth, and scaling out its business is a cornerstone for its success.
Right now, the company says it pays around 70% of all revenues it makes back to rightsholders. After further deductions for its own marketing, technology, operating and other expenses, that leaves a thinner piece for Spotify: adding more users, and more streamed music, to its network will help that that proportion become a more valuable one.
There is also the issue of competition. In markets like the U.S. and elsewhere Spotify competes against the likes of Pandora, Rdio, Songza and many more to become the digital music (and maybe one day digital media including video?) service of choice for consumers, most of whom are not likely to pay for more than one service. Investing more to make Spotify more ubiquitous and more convenient to use than products from its competition is important, too.
Spotify has been working hard to launch ever more new features and new services to snare in more users, and that kind of development also comes at a price. Just earlier this week, the company unveiled Spotify Connect for a more seamless experience to stream Spotify music to different audio hardware. Starting out with a selection of consumer electronics companies that make home speakers, the ambition for where this project will go is pretty big, with the idea that it could include cars, other electronics in the home and who knows what else. “Remember when every music device came with a tape deck or CD player or radio? We would like that ubiquity for Spotify, to be that way on every device,” Pascal de Mul, Spotify’s global head of hardware partnerships, told me in an interview earlier this week.
The counterbalance to all these growth stories, and potentially another resource drain for Spotify, could be how the company plays out its relations with artists and record labels.
It’s come under fire already from some high profile musicians for how it handles payouts. And some copyright holders are now going so far as to start testing the waters over just how much control they have over other kinds of intellectual property on the streaming platform: a case yesterday concerning the Ministry of Sound suing for copyright infringement over playlists being created on Spotify sounds absurd in one regard, but it also points to how there are still a lot of unexplored areas for where Spotify may find itself liable for more payments. Another reason why raising money now may not be such a bad idea.