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Is Spotify the iTunes Slayer?

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Here's a heads-up for any investor or consumer with an interest in media services: European music phenom Spotify is expanding to North America.

The move has been brewing for months as Spotify reportedly signed distribution deals with all the major studios earlier this year. Now you can put your email on a waiting list as the service's front page literally trumpets: "Spotify is coming to the U.S."

Music fans have plenty of reason to rejoice while rivals should be shuddering. Wired compares the service to "a magical version of iTunes in which you've already bought every song in the world." In a freemium model similar to Pandora (NYSE: P  ) , Spotify offers ad-supported access to a library of some 13 million songs or an ad-free and higher-quality stream for a low monthly fee. In its native Sweden, where Apple (Nasdaq: AAPL  ) and its iTunes has a strong presence, Spotify has already become the largest source of music revenues.

Now, Spotify won't sweep in like a kamikaze and kill everybody else. But it's bound to find and exploit a profitable niche in the music-consuming ecosystem. It's attractive to voracious music lovers thanks to its all-you-can-eat subscription model, much like how Netflix streams appeal to value-conscious film fans. Pandora and Sirius XM Radio (Nasdaq: SIRI  ) run the show by algorithm or fixed playlist, respectively, but Spotify expects you to pick your own audio poison -- not unlike iTunes.

Anecdotally speaking, all my friends back home in Sweden have largely sworn off both iTunes and Pandora in favor of Spotify -- free or paid, depending on their tolerance for ad breaks. In colder, harder terms, Spotify recently closed a $100 million funding round from Accel Partners, DST, and Kleiner Perkins that values the company at $1 billion.

Will Spotify conquer America or fizzle and die in a sea of established competition? Add Pandora, Sirius, and Apple to your Foolish watchlist so you can keep an eye on this market, then drop down to the comments box to make your case.

Fool contributor Anders Bylund owns shares of Netflix, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Netflix. Motley Fool newsletter services have recommended buying puts in Netflix and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 08, 2011, at 12:48 PM, jekoslosky wrote:

    Seems like Spotify would present the biggest threat to Pandora. Sirius has the added attraction of original content (i.e. Howard Stern) that you can't get anywhere else. iTunes is a platform for more than just music, and it's well established here as such.

    In any case, music is an already crowded field.

    I should note that I'm long Apple.

    My holdings, here:

  • Report this Comment On July 09, 2011, at 11:14 AM, Sundance1004 wrote:

    Seriously misleading error: Pandora is not in Sweden; USA only. Also Spotify has yet to get Warner Music signed on--a huge gap in the US music world.

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