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March 23, 2012 11:41 pm
Spotify is seeking to raise money from private investors in a deal that would put a valuation of as much as $4bn on the fast-growing online music service, according to people familiar with its plans.
The ambitious goal would mark a big leap from the $1.1bn valuation it was accorded last summer, when it raised money to back its long-awaited launch in the US.
If the company hits its target, it would exceed the $3.3bn that Warner Music was sold for last year and mark the strongest validation to date that investors believe a digital “streaming” business can top the music industry’s traditional revenue models.
Most users listen to a free, advertising-supported version of Spotify, although some 3m pay a subscription for a premium service with extra features, for instance allowing them to listen on mobile devices.
The rapid adoption of the service on Facebook, which made a feature of Spotify when introducing an upgrade to its own site last September, has boosted the confidence of the company in gaining a much higher valuation, according to one person familiar with the fundraising plan.
According to one investor not involved with the company, Spotify is looking for “hundreds of millions of dollars” to build a financial war chest in preparation for future licensing negotiations with the music industry. The proposed deal would value the company in the range of $3.5bn-$4bn, according to two people. Spotify refused to comment on its plans.
If the company is looking for money to pay licence fees rather than to back expansion in markets, it would mark “a troubling sign” for investors, said Mike McGuire, an analyst at Gartner. The lossmaking company has yet to prove that it can make profits from its existing business, he added.
Music industry executives, some of whom were initially wary of Spotify, have been pleased with its success at converting consumers who try its service for free into paying subscribers. Several have also credited Spotify and other legal streaming services with halting the rise of file-sharing and other forms of piracy.
Paul Smernicki, a Universal Music UK executive, this week told a conference it had found no evidence to suggest that Spotify cannibalised music sales. Before stepping down as chairman of Warner Music in January, Edgar Bronfman Jr said Spotify was “incrementally positive” to artists’ revenues. However, some artists including Adele and Coldplay, have limited the music they supply to Spotify out of concern about possible cannibalisation.
Additional reporting by Andrew Edgecliffe-Johnson in New York
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