Spotify expansion set to spark music download start-ups

The success of music streaming start-up Spotify could help unlock the niche’s potential in Australia, according to a lead tech seed fund.

Spotify, an online Anglo-Swedish company launched in 2008, has announced that it now has one million paying customers out of an overall customer base of 6.67 million.

The majority of users listen to music for free, listening to advertising content in return. Different tiered subscriptions, starting at the equivalent of $6.90 a month, allow customers to listen to music ad-free.

Spotify is in the midst of a $US100 million fundraising that values the company at $US1 billion.

The business, currently only available in the UK and western Europe, is planning to enter the US market. An Australian foray is also in the offing, although not immediately.

Contacted by StartupSmart, a Spotify spokeswoman says: “Spotify’s long-term aim is to be available in every country. We know just how passionate Australian music fans are but we don’t have any immediate plans to launch there.”

The expansion of Spotify, and the progress of other overseas ‘online radio’ sites such as Last.fm, is in stark contrast to the lack of Australian innovation in the area.

This could be set to change, according to Mick Liubinskas, co-founder of tech seed fund Pollenizer, who says that the sector could develop significantly in coming years.

“It’s a big area that hasn’t been disrupted as yet,” he says. “What Spotify have achieved already is amazing. They have managed to tread a delicate line of keeping the record label dinosaurs happy as well as doing something new.”

“There is potential for new businesses and I know two or three start-ups that are building an Australian version of what Spotify is doing. It will have to match Australian culture, though – Starbucks didn’t work in Australia because of that and if Spotify takes a cookie cutter approach to Australia then it will warrant another entrant to the area.”

Liubinskas dismissed suggestions that the online music category could explode in Australia in a similar way to group buying, pointing to the multiple barriers to entry for start-ups.

“Australia isn’t a huge market and the money needed to buy rights and become a big player is huge,” he says. “You don’t need that kind of investment to get deals on a group buying site.”

“To do it properly, you need to make 50 to 100 deals and it’s complicated. I’ve seen five or so movie download sites, for example, and they’ve never got any decent content because it’s hard to become big enough or connected enough.”

“However, the timing is right for start-ups here to get the model right.”