Can Spotify deal a killer blow to iTunes?

We investigate whether Spotify can take the fight to Apple

Spotify has recently begun running video ads as part of its offering to advertisers

Numerous questions have been raised in recent weeks regarding the long-term sustainability of Spotify's business model.

While some news outlets have been running stories of musicians requesting that their label pull them off Spotify, the Swedish-based music streaming service has remained quiet on the issue of remuneration for artists.

Elsewhere, tech news outlets such as the Register have referred to Spotify as "the music industry's free lemonade stand" and a recent TechCrunch column went so far as to tag it "Europe's YouTube".

Yet when none other than Facebook is rumoured to be courting the Swedish music streaming upstart – and in almost direct opposition to the growing crowd of Spotify naysayers online - a new report in the Telegraph this week claims that a senior figure in the music industry estimates that Spotify will make 'significant' revenue for UK record labels 'within six months' if it continues to grow at current rates.

Threat to iTunes?

The head of Universal Music in Sweden, Per Sundin told The Swedish Wire recently that: "In five months from the launch Spotify became our largest digital source of income and so passed by iTunes."

One has to take into consideration the fact that the digital music culture in Sweden has always been far more skewed towards illegal downloads over paid-for legal downloads than it has in the UK.

Added to this is the fact that the market is far smaller over there - the UK digital music industry is worth £153.57 million compared to the Swedish market being worth £6.58 million, according to latest IFPI figures.

However, despite those caveats, it still raises the question – might Spotify soon be a serious threat to iTunes internationally?

Bigger than the Beatles?

"Spotify deserves credit not just for its innovation in the way it streams music for listeners, but also for the way its arrival has electrified the debate about music online," says NME News Editor, Paul Stokes.

"To the old 'legal downloads versus file sharing' argument, we have a third front and a new possible future," adds the NME man. "Spotify should take the credit for bringing cloud storage into the debate."

However, Stokes, like many others in the UK's music industry, is quick to add that, "like a band who have just made an excellent debut album, it's too early to tell if they're going to be bigger than The Beatles."

He adds: "There is a lot of uncertainty about how Spotify can pay for itself and more importantly whether their economic model can support the artists who are creating music, let alone the wider music industry behind them."

In reality, it is simply too early to take a call on whether or not Spotify's business model is either 'broken' or 'the future', as media and industry commentators clamber over one another in a rush to back (or cut-down) 'the next big thing'.

Broken business model?

Another (often veiled) suggestion from some of its critics is that Spotify is little more than "a short term money making scheme" and one that has been formed to be built up "until a Murdoch-style media tyrant buys it out," says Joe Wilson, Course Leader in Popular Music at the University Of Gloucestershire.

"Right now, it is pretty clear that there appears to be not enough revenue being returned to the actual artists," Wilson admits. "Whilst all this may be true, it doesn't alter the fact that this is all coverage and exposure for the artists on Spotify.

"It is a recognised channel of delivery, with a sizable audience. If somebody is listening to your music (even if you are not paid for it) you then have the opportunity to make money through other revenue streams including actual recorded material.

"Artists could stream their own material, but then they would not have the audience that a platform like Spotify offers."

NME News Editor, Paul Stokes is broadly in agreement, adding: "Whether Spotify is the future or not, it has raised some very exciting questions for us music fans and with innovations like their proposed Spotify iPhone App suggesting Spotify is already looking ahead.

"How it develops and, more importantly, what it inspires over the next few years will have important consequences for how music is consumed in the early 21st Century."

Whether it grows into a serious threat to iTunes or not, Apple is unlikely to watch Spotify's growth without taking action of its own.

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