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Recent IFPI report on digital music reveals the size of Spotify in Europe and how much money it’s actually churning for the record labels. The report also stated that on a European level, Spotify is the second single largest source of digital music revenue for record labels. This means that 2010 saw dramatic increase in its usage as well as payouts to record labels and artists themselves.

The report states that digital music revenues grew by 20 percent in Europe in 2010. Record labels still rely heavily on sale of physical music, CDs etc. and in total digital music only accounted for about 20% of music sales in 2010.

Overall, the service is the largest digital music retailer in Norway and Sweden and also in terms of usage. It is number two in Europe behind iTunes. One of the reasons behind this growth and success has been Spotify’s strategic deals with ISPs, mainly Telia. The IFPI report forecasts music services to generate more than £100 million in revenues for ISPs by 2013.

Daniel Ek, CEO of Spotify states “ISPs need to start looking at these strategic partnerships as a marketing tool and integrate them into their core operations.” ISPs are naturally of great interest for music companies as they have a billing relationship to a large existing user base.

However, the real reason hype Spotify here is that the global digital music market was about $4.6B in 2010. Only 29% of the overall market was digital, on a global level. If we look at national markets, Finland for example, we can see Spotify’s real effect for record labels and the market place.

According to IFPI Finland, total digital sales increased a very nice 87,5% in 2010 compared to 2009. But the real winner inside this category was bundled subscriptions, which saw a jaw dropping increase of over 1400% to 2.8M euros in sales, just in Finland. Bundled subscriptions is of course mostly services such as Spotify.

Another interesting category, relating to Spotify in Finland was the ad-supported income, which increased from about 785 000 euros in 2009 to about 2.2M euros in 2010. Overall, the digital music market in Finland was valued at approximately 7.8M euros last year. Therefore we can easily conclude that Spotify has really taken the market by storm and started to pay some serious return for the record labels.

Spotify’s growth in Sweden was strong, but a lot more modest compared to Finland. According to a press release by IFPI Sweden, digital streaming services grew 162% year-on-year to about 170 million Kronor (about 19.3M euro).

In conclusion, Spotify’s 2010 looks amazing. No wonder Daniel Ek is able to speak about Spotify’s development in a confident way: “We signed up more than 750,000 subscribers in the first year of our subscription offering. I believe we’re on track to be the biggest music subscription service in the world very shortly.”

Update 4.20 GMT, February 9th 2011: A few clarifications regarding the article have been made; Spotify is the second largest source of digital music revenue in Europe after iTunes (however, it is questionable that there are larger single sources of revenue comparable to iTunes and Spotify). Secondly, Spotify is the largest digital music retailer in Sweden and Norway.

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