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Archive for August 28th, 2012

Article from GigaOm.

Spotify's Daniel Ek And Martin Lorentzon

Spotify more than doubled its revenue through 2011/12 after expanding to new countries like the U.S.. But the cost of doing so ballooned by the same proportion. The company spent 97 percent of the the €187.8 million it earned. So annual loss widened to €45.4 million.

In its 2011/12 Luxembourg filing, the company acknowledges: “In a low-margin business dependent on rapid growth to cover fixed costs, it is crucial that the group continues to penetrate existing and new markets as quickly as possible…”

With economics like this, global scale may be the only thing that can make Spotify truly sing. But, with Asia and Latin America build-out next on the horizon, it could be at least another year before roll-out costs ebb to the point where profitability is remotely in sight.

If Spotify is not yet a successful business, it is nevertheless a strategically significant one for others in the music industry. It has become the number-two income source for some labels in some countries. More interesting, however, is its direct relationship with labels, the four majors of which are believed to own 18 percent of the firm.

Through that relationship and through Spotify’s underlying API and third-party apps initiatives, it could yet become the industry’s de facto streaming platform – a fabric used by a thousand other services; part-operated by the labels themselves. As one friend described it to me: “A social not-for-profit for the good of the music industry, a rights clearing house.”

Herein may lay a dilemma…

As Spotify continues laying the costly groundwork for global dominance of subscription streaming, it needs more funding to make up for what is, so far, its unsustainability.

“To cover losses during the expansion phase, the group has been financed by existing and new equity owners,” Spotify’s Luxembourg filing says. “We cannot exclude the need or desire to raise more funds in the future.”

The problem is, if Spotify takes a fifth investment round to go on globalising, as has been rumoured, that could dilute the equity of its most vital partners – the labels.

To the labels, their stake is likely of more strategic than financial value – as already stated, they are helping create a digital streaming API that could bear great fruit. So they may want to hang on to the influence that they currently have.

If a new investment in Spotify diluted the labels, they may start charging Spotify more standard royalty rates, rather than the favourable rates it is believed it has been granted until now. That could mean Spotify’s costs escalate still further.

Spotify could dodge this problem by attracting investors only to spin-off regional subsidiaries in its next two target markets – Asia and Latin America – thereby ringfencing its core from dilution.

Four years after its foundation, trailblazing Spotify is the music business’ greatest chance at meaningful new revenue in a digital generation. But it remains to be seen exactly to whom it will provide the most value.

The well-run company is investing heavily in what could become a very valuable global business. But, until its international expansion is completed, we will be hard-pressed to ascertain its true value.

Read more here.

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GET UPDATES FROM Lauren A. Rothman

The Fashion Whip: Michael Steele On What to Wear At The Convention

Some fashionistas dream about Mercedes Benz Fashion Week – I dream about the Republican and Democratic National Conventions. Who will wear what? Will my “bundle” method of packing suitcases with shirt, tie and accessory combos make it safely to baggage claim? Will the political elite log in to check their online style albums? Many of my clients are moving from C-SPAN to Primetime for the next two weeks and the stakes are higher.

While most politicians are not aiming for a spot on the best-dressed list, there is a uniform for standing at the podium: navy suit, white shirt, red tie (sometimes blue). The conventions are Poliwood’s Sundance Film Festival with lots of meeting, greeting, and speaking; outfits even get better as the week comes to a close. Like walking the red carpet, the RNC and DNC conventions are a time to shine, so don’t re-wear last year’s best threads!

I asked Michael Steele, fashion plate and former Chairman of the Republican National Committee, to share his top three style tips for speakers at this year’s RNC and DNC conventions. Here is what the political analyst for MSNBC and partner at Purple Nation Solutions advises:

“Wear a suit your mother would be proud to see you dressed in!” Your suit should reflect your style even if you’re not stylish. Add a pocket square and accentuate with a nice tie. Michael says many politicians are partial to the “George Bush baby blue” tie in a solid light blue, calling it one of the prettiest shades of blue connoting softness and strength.

“Adding a tie pin and cuff links will set off a nice suit perfectly!” Michael says this is definitely an occasion to wear cuff links (even if you’re not a cuff links person). Michael encourages speakers to “frame your words with your cuff links and tie pin” to complete your powerful look.

“Comfortable underwear and shoes are a necessity.” You will spend at least 12 hours walking around – Michael advises to be comfortable and make sure your clothes “fit in a way that you don’t feel trapped.” Need we say more?

Be sure to add your American flag pin and leave your button cuff shirts at home. And, look out for a stylish Michael Steele – he will be the tall guy in wild colors, striped shirts, and a purple seersucker suit.

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