Valuing Spotify

Spotify is closing in on a new $100 million round of financing from multiple investors at a valuation of slightly more than $3 billion, according to the Wall Street Journal. While impressive for a company that is yet to turn a profit, the valuation is actually more modest than Spotify’s original expectation of a $4 billion valuation?

Where did the extra billion go? The Journal speculates it was a victim of the disappointing post-IPO performances turned in lately by shares of Zynga, Groupon, Facebook and other internet companies. AllThingsD thinks Netflix’s recent struggles are to blame, for souring investors somewhat on subscription streaming services.

Whatever the exact cause, there is ample reason for investors to be cautious about any one company working the digital music space right now. Spotify, like Pandora and iTunes, has built its monetization strategy and rights deals around a single use case for music, in Spotify’s case on-demand subscription streaming. But as we’ve noted here before, use cases are evolving rapidly, and device-centric platform providers like Microsoft, Amazon and Apple are pushing rights owners to allow them to offer music (and video) across multiple use cases and via multiple business models in an effort to monopolize consumers’ spending on media content.

With so much in flux, and with so much deep-pocketed competition on the horizon, keeping expectations within any given vertical market segment modest for now is probably wise.