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Is Spotify the iTunes Slayer?

By Anders Bylund - Updated Apr 6, 2017 at 7:45PM

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The music market may be due for yet another shake-up.

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.

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