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Hello Apple Music, Goodbye Spotify?

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On the 8th of June, Apple's CEO announced the release of Apple Music, the new streaming service which will be released at the end of the month and will be installed on all the devices running the latest iOS 8. With the application, Apple enables customers to listen to music and interact with artists in a similar way to the main competitors, namely Spotify or Google Play Music. And when the most valuable company in the world starts competing against you, you know you are in a fix.

With 20 million premium users and 55 million subscribers who listen to the free version, Spotify is the market leader in music streaming and one of the most funded start-ups in Europe, having raised more than $1bn since it was founded. However, a few days after Apple's WWDC, Spotify raised $526m from investors to face the increasing pressure from its new main competitor.

Indeed, even though the Swedish company has the first mover competitive advantage, the Silicon Valley giant will release its new application in a much more efficient way as customers won't be required to download the app and will be allowed to probe it with a three months trial. Furthermore, Spotify's ability to generate profit is strictly fastened by music copyright owners: according to the contract, Daniel Ek's app is required to pay out 70% of profits to record labels and music publishers. The company is so bound by three major music labels (Vivendi's Universal Music Group, Sony Corp's Sony Music Entertainment and Len Blavatnik's Warner Music Groupthat) that in 2014 it reported a net loss of more than $180m and that, in the worst case scenario, it could be made insolvent.

The main threat is that Spotify is required to at least equate Apple's slice of profits paid out to the music industry. But Apple has already announced it will pay 73% of revenues to music labels against Spotify's 70%: those three percentage points are the biggest threat for a company which is already facing net losses and this is why Spotify needs to invest all of the $526m to innovate at an unprecedented pace.

The "massive leap forward" Spotify is making – Daniel Ek says – is a new version tailored to the listener's tastes and which includes the addition of video and podcasts. Indeed, the new version of the application will be able to understand what the right track is based on what the user is doing (like running very fast or just warming up) and what he usually listens to. This semantic development will be made possible by the recent acquisition of the data group The Echo Nest. Moreover, video streaming will be added to the platform following the signing of contracts with major players like BBC, ESPN, MTV, NBC and TED, just to quote few of them.  READ THE FULL Market Mogul ARTICLE