This article was updated on May 17, 2017, and originally published on April 5, 2016.

In the digital music market, $1 billion can buy you a lot of songs. At least that's what Swedish streaming music upstart Spotify hopes.

In what seems to be a cooling market for start-up investing, the world's largest on-demand streaming service raised a cool $1 billion to help cement its global lead in this increasingly important market. However, as with most things in life, Spotify's new funding comes at a cost, the most likely of which is its status as a private company.

Spotify's 2016 $1 billion round

In March 2016, Spotify closed its largest ever round of financing, securing $1 billion in capital from a consortium of investors including Goldman Sachs, hedge fund Dragoneer Investment Group, and private equity giant TPG. The deal came in the form of convertible debt, which, as the name suggests, contained an option for the investors to swap their promissory notes for equity under certain circumstances.

The use of convertible debt allows Spotify to maintain its June 2015 valuation of $8.5 billion without diluting the company's existing shareholders. However, this sweetheart of a deal came at a price for Spotify and its current investors.

An image of an iPhone screen featuring several prominent streaming music apps including Spotify, Pandora, Apple Music, and more.

Image Source: Getty Images

The debt carries a 5% interest rate that increases by one percentage point every six months until either Spotify executes its IPO, or the interest rate hits 10%.

The deal comes at a time of considerable upheaval for other music industry names including Apple (NASDAQ:AAPL), Pandora (NYSE:P), and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).

Two predictions

Parsing Spotify's intentions, amid a fair amount of action within the wider streaming music market, is where things truly become interesting. And what's the fun in not trying to guess a bit?

For starters, I don't see this as evidence that Spotify will acquire Pandora, as many have long discussed. I've never liked this theory, because it isn't clear what advantage Spotify would gain in doing so. True, Pandora had 77 million active listeners at the end of the first quarter of 2017, but virtually all of those use Pandora's free ad-supported product, even as Pandora has since launched its own on-demand equivalent. Timing also strikes me as a hurdle.

A screen shot of Apple Music's user interface

Image source: Apple\

Completing its largest acquisition ever either closely before or after going public would seem like a logistical nightmare in the works. I could be wrong, but taking both points into consideration, Spotify purchasing Pandora just doesn't add up.

What seems more likely to me is that Spotify will follow Apple's slowly unfolding tactic of using video content, perhaps even its own exclusive content, as a means of insulating itself from better-financed rivals like Apple and Alphabet. Word has surfaced that Apple is in fact accelerating the pace of its original and exclusive content strategies. The strategy is by no means innovative. It's really an extension of the content strategy we've seen employed with great success at Netflix in streaming video. Alphabet's YouTube has taken steps to secure its own original video content as well. 

The most recent rumor following Spotify claims that the streaming giant plans to conduct its long-awaited IPO using a obscure method known as a "direct listing." In such an event, the company directly sells its shares to the public, which allows the market to set a trading price for Spotify stock. This would allow Spotify to skirt paying steep fees to Wall Street investment bankers -- a move some claim could serve as a fundamental blow to banks' IPO departments. However, the move also risks Spotify potentially leaving precious capital on the table by not having an experienced bank managing setting the company's initial price.

Reports claim Spotify will seek a $13 billion valuation as part of its IPO and that the deal will likely take place in the latter half 2017 or early in 2018. So as they say in the radio business, stay tuned, folks.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Pandora Media. The Motley Fool has a disclosure policy.