[Music] Spotify Is Now The Second Biggest Source Of Revenue For Labels

Spotify Is Now The Second Biggest Source Of Revenue For Labels

Spotify is now the No. 2 revenue source for the major music labels, a source close to the company tells us.

Spotify is an on-demand music service. There are free and subscription options. 23 million people used the service last month, according to AppData.

The No. 1 revenue source for labels is Apple's iTunes.

iTunes paid approximately $3.2 billion to record labels in 2011, Business Insider Intelligence estimates.

The gap between Apple and Spotify remains extremely large, our source tells us.

"iTunes is way up here," our source said, gesturing up high, "and everyone else is way down here."

At this year's SXSW conference in Austin, early Spotify investor Sean Parker said: "If we [Spotify] continue growing at our current rate in terms of subscriptions and downloads, we’ll overtake iTunes in terms of contributions to the recorded music business in under two years."

Spotify, founded in Sweden in 2006, is currently raising $220 million at a $4 billion valuation. Goldman Sachs is investing $100 million in the round, Evelyn Rusli reported in the New York Times.

Spotify raised more than $100 million at a $1 billion valuation in 2011.

We first heard about Spotify's latest raise at a massive valuation back in March. Then, investors told us they were very skeptical of the company's prospects. The reason: Spotify does not own the content it sells to consumers. The labels do. In this view, the music labels will be able to keep a close eye on Spotify's margins and tax the startup's (as-of-yet unrealized) profits heavily.

The more optimistic view is that the labels will support Spotify as an alternative to iTunes, which the labels view as too powerful. In this outcome, Spotify will become a revenue source the label come to depend on and it will be able to dictate terms.