Media

Will another $100M help Spotify deflect competition from Microsoft & Apple?

Rumors about a fresh round of funding for streaming music service Spotify resurfaced today, according to a Wall Street Journal report that cites anonymous sources familiar with the deal.

The report claims Spotify is close to closing over $100 million, which could put the startup’s valuation at about $3 billion. The round comes from multiple investors, including Goldman Sachs. The funding amount is considerably less (up to $220 million at a $4 billion valuation) than it was in previous rumors of the round back in May.

The music service has experienced massive growth ever since its initial launch in the U.S. last year. Shortly after, it hooked up with social media behemoth Facebook to be one of the first Timeline launch partners. The service currently has 15 million active users across 15 countries and over 4 million paying subscribers.

Founder Daniel Ek has previously hinted that Spotify could generate as much as $900 million in revenue this year. That’s certainly impressive, but as VentureBeat has previously noted, Spotify’s business model isn’t bulletproof. Critics cite the company’s extremely high music licensing costs as one reason it may not succeed in the future, while warning that it’s overly dependent on major music companies. Also, indie music labels aren’t happy with Spotify’s payment structure and have even removed their music from the service entirely.

My guess is that the alleged new funding has something to do with the company wanting to protect itself from heightened competition — not from rival music services like Pandora, Rdio, MOG, and Rhapsody but from the likes of Microsoft and Apple. Microsoft recently announced plans to launch a streaming service through its Xbox Live platform, which is very similar to Spotify in both pricing and scope. And rumors say Apple will soon throw its hat into the ring with an Apple-branded Internet Radio service, which has provoked lots of fear from both Pandora and Sirius XM shareholders.

Founded in 2009, Stockholm, Sweden-based Spotify has raised a total of $189 million to date from Kleiner Perkins Caufield & Byers, Accel Partners, DST Global, Sean Parker, and others.

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