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The music industry needs Spotify to be successful — but not too successful

The music industry will hold its collective breath on Tuesday as Spotify, the world’s biggest streaming music service, makes its debut as a public company.
Image: Kylie Minogue performs to her Spotify Premium fans
Kylie Minogue debuts songs from her new album to fans in London on March 22.Dave Hogan / Getty Images for Spotify

The music industry held its collective breath on Tuesday as Spotify, the world’s biggest streaming music service, made its debut as a public company.

Once maligned by musicians and record labels, Spotify has helped turn around a brutal collapse of the music industry that started in the early 2000s and has only recently begun to reverse. Streaming music services like Spotify now account for nearly two-thirds of the industry’s revenue and almost all of its growth, according to the Recording Industry Association of America.

But as much as the record labels will be cheering Spotify on at its public debut (the major labels are part owners of the company), they will also be keeping a watchful eye that Spotify doesn’t get too far ahead of the pack. The music industry needs Spotify to be successful, but not too successful.

"The music labels hate any single player getting too powerful," said Mark Mulligan, a managing director and music analyst at MIDiA Research. "The way the music labels think, they have a narrow focus, so they're already thinking of Spotify being the dominant player. Now, it's how can they clip its wings."

For consumers, it’s a test of whether one of the most successful music companies in history can keep its prices low while holding off competition from tech giants — many of which are testing just how little they can charge people to listen to any song, any time, any place with an internet connection.

The industry won’t have to do much to keep Spotify from becoming dominant. The company is projected to have 93 million paying global subscribers by the end of 2018, but Apple Music the appears ready to overtake Spotify in the US this summer, according to the Wall Street Journal. Amazon and Google also offer music subscription services.

Spotify has also never made a profit, though the company projects to begin making money as long as it continues to add subscribers and improve its margins.

Competition between music services will help the music industry retain power to negotiate as well as give consumers options, said Larry Miller, associate professor and director of the music business program at New York University.

"What the music industry and consumers need is a robust competitive situation with multiple services offering music in different ways that appeal with different kinds of premium content," Miller said.

Warner Music’s chief digital officer, Ole Obermann, also said that music services have been offering very similar products — and that they need to figure out a way to cater to particular groups of people.

“Musical taste is such a personal thing that it’s imperative for the streaming services to differentiate their offerings and appeal to a wide variety of fans’ preferred genres and listening habits,” he said.

Spotify has been working on that with a combination of personalized playlists — its Discover Weekly playlist has drawn widespread positive reviews — and curated playlists for particular genres, such as “Rap Caviar” and “¡Viva Latino!”

Spotify has also explored a variety of other offerings meant to increase its revenue and attract and retain subscribers. The company continues to experiment with video and recently began streaming podcasts.

Miller said it’s still early for Spotify and streaming music in general. Companies are just starting to explore newer ways to deliver music, including connected home speakers and a place where radio is still dominant — automobiles.

“As exciting and heady as these numbers are - and as eye-popping as the losses are - it's really early days,” he said.