Is Spotify’s business model broken?

Pandora continues to be intensifying its lobbying in support of the offered Internet Radio Fairness Act, which may reduce the proportion of revenues that Web radio stations need to pay to copyright holders. The Act would lead to a flatter system in which music streaming providers would pay for the same rates as paid by satellite radio, which at this time are about 8 percent of total revenues. Pandora presently pays over fifty percent its total revenues in royalties. As the startup community should root for Pandora’s lobbying efforts, the balance inadvertently highlights the public company’s weaknesses.


Spotify, at the same time, doesn’t must worry as much since Pandora does because it has a broader foundation of long-run revenue options than does its American rival.

To put it simply, Spotify surpasses Pandora as both a business and a program. I’m by no means convinced it is worth the rumored $4 billion valuation that CNET has reported, but despite the consternation over yesterday’s state that its losses elevated by 60 percent from 2010 to 2011, I think it has a bright long term. What most observers neglect to recognize is that Spotify is more than just a streaming service that provides songs for free in the hope that individuals will join subscriptions. It is, actually, developing a mini music economy that leverages the creativity of third parties and offers brands a platform to engage viewers beyond just marketing.

Then there’s Spotify radio function. This is exactly what makes Pandora’s problems apparent. Spotify’s radio function is not only superb instantly creating playlists according to individual songs ¨but additionally, it achieves everything of what Pandora does. In other words, Spotify’s Pandora-like function is just that: An element. Pandora, on the other hand, has staked its entire company on it.

Spotify Radio is preferable to Pandora, too, since it ties into the user’s library, which is centerpiece of Spotify’s service. This means if you like a song you experience on Spotify Radio, that track gets instantly added to a playlist in the library. That two-way system helps make the choice between the two services simple for any serious music fans and they’re those who put money into music and its add-ons.


For most people, Pandora has already been the default music application on their smart TVs and in cars, but that dominance is determined by how low the barriers to entry are in these products. In this way, Pandora exploits the market’s laziness by offering a total no-brainer music experience at the touch of a button. Spotify needs a little more work on the part of users, who need to look for the music they would like to listen to unless they simply switch on the Radio function.

The revelations of Spotify’s installation losses indicate serious trouble for the company. But for its competitor, the relationship is much more grave. For Pandora, the passage of the Internet Radio Fairness Act might be a matter of life or death. And that’s an incredibly uncomfortable position for a public company to be in.