How Piracy and Streaming Reshaped the Music Industry
When music and film content began to be commercialized in physical formats, it was a revolution for the entertainment industry. Suddenly, musicians and actors could make money outside of live concerts and theaters by selling copies of their performances.
In this model, musicians would generally sign with a music label to get their music recorded professionally, copied in physical format, and then distributed. The vinyl records were replaced by cassettes and then by CDs, with sales growing year after year.
It lasted for many years, but the arrival of the Internet disrupted this model by making the copying and distribution of data almost free. As a result, piracy exploded, and even a barrage of new regulations, very publicized trials, and other actions by the music industry did little to stop CD sales from collapsing.
Multiple music labels tried to push for digital downloads instead of physical copy purchases, but its appeal was short-lived with the public.
Overall, US music sales peaked in 1999, just at the height of the Internet bubble. They would then be divided by 3 until a low point in 2014.
Source: Statista
It would be an outsider, a software company that would become the saving grace of the music industry: Spotify. As the dominant service in music streaming, Spotify has carved a very solid niche for itself. It is now expanding in every other audio market, from podcasts to, more recently, audiobooks.
Spotify Technology S.A. (SPOT -2.47%)
Spotify’s Early History and Rapid Growth
Spotify was founded in Sweden in 2006, pioneering the idea of music streaming, at a time when internet connections were barely starting to be fast enough for it.
Its initial business model was more similar to that of radio by making money from ads between songs, with the streaming/on-demand extra feature something radios could not offer.
Later on, it added a subscription-based premium service, removing all ads.
For both streaming offers, Spotify paid back a lot of its income to the music copyright owners, building strong relationships with them as they were struggling with declining sales.
The company expanded abroad with a launch in the UK in 2009. It was successful enough, especially its mobile service, that it had to roll back the launch with an invite-only policy at first and build the required infrastructure later.
2011 saw the user base number explode, moving from 1 million users in March to 2 million users in September.
The US launch was done in 2011, with an initial 6 months of unlimited content, followed by a limit of 10 hours per month of streaming maximum.
By 2012, the company had 15 million active users, of which 4 million were premium subscribers.
The growth continued on an exponential curve, with 40 million users in 2014 and 100 million in 2016. By 2020, there were more than 133 million premium subscribers.
Spotify became a publicly traded company in 2018 with a direct public offering instead of an IPO, as it was intended to provide an exit for early investors, rather than raise capital.
Spotify Users, Revenue, and Market Share in 2025
Spotify is now by far the largest streaming service in the world, with 675 million users, including 263 million subscribers. For comparison, Netflix (NFLX +0.02%) has “only” 300+ million subscribers, with no free users.
Source: Spotify
Today, the company has by far the largest available audio catalog, with 100 million tracks, 6.5 million podcast titles, and 350,000 audiobooks.
The company’s services are available virtually everywhere, except China, with a presence in 180 countries.
While North America and Europe make up the bulk of the company’s users, it is also large in Latin America and the rest of the world.
Source: Spotify
However, most of the premium subscribers, and therefore of the company’s revenues are from North America (37%) and Europe (26%).
Source: Spotify
2024 was the very first full year when the company registered a positive net income, standing at $1.1B.
While fluctuating in other regions, the company subscription pricing range in Europe is from €9.99 / month for individual accounts to €12.99-€15.99 for multiple user accounts. Prices out of the USA might increase by another €1 / month in the summer of 2025.
Overall the subscription price increases have radically improved the company’s margins, although the ads segment also contributed to rising profits.
Source: Spotify
The company pays 70% of its total revenue to copyright holders and generated $15.6B in revenues in 2024. It was also the first year when the company paid more than $10B in royalties to music rights holders, the highest of any single retailer in the industry.
This is a fundamental part of Spotify’s business model and marketing positioning, with a goal to be seen as “giving back to the artists” their fair share of revenues, In total, the company has given back to the music industry more than $60B since its founding.
How Spotify Revolutionized Music Streaming
Why Convenience Beat Piracy and Changed Music Forever
How did Spotify manage to compete with piracy, which was widespread and offered the music Spotify was selling for free? This was a tough problem that music labels could not solve for almost 2 decades.
The key element was to understand that, of course, consumers value a cheaper offer, and there is hardly anything better than free in that respect. However, they often value even more something else: convenience.
Piracy may have been free, but it was far from easy. You needed to find a reliable torrent website, download and learn to use dedicated software, risk contaminating your computer with viruses, store the data on your own hard drive, and organize it in such a way that you can find it back and play the music the way you wanted, etc.
All of these were quite a hassle, even ignoring the ever-present risk of heavy fines. On top of it, the music quality was often quite low, due to compression keeping the files small enough. Finding the right file was also often a challenge.
In contrast, streaming services like Spotify for music and Netflix for movies offered instant access to virtually every music ever made, with an efficient search engine, playlist memorization, high-quality sound, etc.
Spotify transformed music listening forever when we launched in 2008, moving the music industry from a “transaction-based” experience of buying and owning audio content to an “access-based” model allowing users to stream on demand.
How Spotify Partnered With Music Labels to Beat Piracy
The reason Spotify, rather than music labels, succeeded in creating this streaming offer is the depth of its catalog. Sony or Universal Music would never agree to license artists from their competitors’ streaming platforms to their catalog. However, music lovers want to access all their favorite artists, not just those from a specific label.
Therefore, the only option would be to use multiple streaming services that are incompatible with each other, and never be able to listen to different labels in the same playlist. When this was the alternative, piracy was just a better offer.
Spotify, being a neutral platform, was more akin to a radio station or a music shop from the music labels’ point of view. By providing further reach and much-needed revenue in a time of crisis, the company was never perceived as a threat or a potential competitor.
Source: Hypebots
This is the same model that has led to the emergence of Netflix for movies & TV series, or Steam for PC games: a neutral party with everything the industry had to offer at once, easy to download, and at a reasonable price.
The combination of convenience, safety, and ultra-deep catalog proved to be the winning business model. And contrary to film production and Netflix, it seems that there is no “streaming war” looming with content producers wanting to launch their own streaming service, inadvertently almost reinventing cable TV.
A key factor in avoiding this situation has been the steady neutral stance of Spotify, as well as the dire need of revenues of a music industry in crisis and without a survivable business model post-2000.
Spotify’s Competitive Advantages and Market Dominance
As a neutral service not directly affiliated with any specific music label, but having almost every major artist in its catalog, the platform has a strong network effect with its offer superior to all its competitors, including the proprietary offers of specific music companies.
This helps the small Swedish company to manage to compete head-to-head even with tech giants, with Apple Music having “only” 95 million subscribers and Amazon Music 32 million.
Source: Business Of Apps
Another effect protecting the business is that most users have been Spotify subscribers for many years. As a result, the software contains all their personal playlists and knows their music taste, and overall, changing to another provider would require at least hours of work to recreate the experience they are used to in Spotify.
Spotify’s Growth Challenges and Pricing Strategy
As Spotify is looking to become a profitable company, it was feared that its growth would slow down with increasing prices. So far, it has not suffered too much from it, reflecting the first-mover advantage and the strong moat of the business.
However, there is probably a price point at which piracy or alternative offers from other tech companies could become more attractive. So, finding the goldilocks zone of high enough profits, but not too high to turn away users or stall growth, will likely be the main focus of the company’s management in the years to come.
Spotify’s Expansion Into Podcasts and Audiobooks
Spotify’s Strategy to Dominate the Podcast Market
As it built its music catalog and streaming service, Spotify became an expert in delivering at the lowest cost the highest possible audio quality to its users.
As they are already counting on the app to provide them with music, it makes sense that its users would also trust it for other audio content.
As podcasts grew in popularity everywhere, so did they on Spotify. The company has long looked to dominate the sector since the podcast industry’s emergence as an alternative to TV talk shows, radio hosts, and news channels.
This ambition in podcasts was especially visible with the onboarding on Spotify of the world’s most popular podcast host, Joe Rogan, for an exclusivity deal worth $100M in 2020. It was later renewed in 2024 for $250M, although without exclusivity to Spotify at that time, with the company handling distribution and ad sales for the podcast.
We are changing the podcast industry the way we did with music, by building a best-in-class podcast platform and transforming how creators create and monetize their work.
Our goal is to revolutionize all of the audio and become the world’s number one global audio platform.
So far, the podcast industry is a lot less Spotify-centric than music, but as many are already paying for subscriptions, they might appreciate access to exclusive audio content locked behind paywalls, an increasingly common practice by content creators to monetize their work.
Spotify’s Push Into the Fast-Growing Audiobook Market
Another audio format becoming increasingly popular is audiobooks. This is when a book is narrated so that users can listen to it, and it represents now no less than 20% of book readers today.
This market is currently standing at $8.7B and is expected to grow at a very aggressive pace of 26.2% CAGR until 2030.
Source: Grand View Research
Several trends are underpinning the growth in audiobooks, including:
- Almost universal ownership of smartphones and high-speed mobile connection.
- Evolving consumption trends, with on-the-go “reading” fitting better in busy schedules.
- Declining attention spans and preference for video and audio content versus text-based content.
- Professional or even celebrity narration enhances the experience compared to traditional reading for many listeners.
So far, the audiobook market is dominated by the same company that took over the book market in general: Amazon, and its subsidiary Audible.
Since October 2023, all Spotify premium users or premium family plans have access to 15 hours of audiobook streaming a month across the 200,000-plus titles on the platform. Other additional subscriptions can give extra hours, pay-per-audiobook, or unlimited access.
Spotify vs Amazon: The Battle for Audiobook Listeners
This seems to put Spotify on a crash course against Amazon, with the Swedish company having a lead in music and podcasts, and lagging in audiobooks. Here, Spotify controls only 11% of the market.
It also seems that most audiobook listeners on Spotify are newcomers to the market, likely driven to it by their existing subscription rather than a long-established habit of listening to audiobooks.
In our more mature markets, audiobooks have also become one of the biggest sources of revenue growth for publishers.
Our data shows a significant increase in unique listeners who are discovering the magic of audiobooks for the first time via Spotify.
This is, on one side, an opportunity for Spotify to lock in a portion of the market in its ecosystem. It, however, also means that the most avid audiobook consumers are, for now, mostly Amazon customers.
For now, Amazon seems to have the upper hand, despite deals sometimes described as unfair by authors, where they only get 25% royalties from sales on Amazon if they do not give the company exclusive distribution of their audiobooks (and then getting only 40% royalties).
As a result, very prominent and popular authors like Brandon Sanderson have refused to release some of their new books in Audible as a protest.
I felt I could have gotten a better deal for myself, but the entire state of this industry was seriously concerning to me.
So, I made the difficult decision NOT to release the four Secret Projects on Audible, costing me a large number of sales, to instead try to bolster healthy competition in the space, highlighting some of the smaller Audible competitors.
In contrast, Spotify offers up to 50% of royalties to the authors, with no exclusivity requirement. And it is still expanding, with notably German-speaking countries recently getting a much larger audiobook selection in April 2025.
Whether this will be enough is yet to be seen, as less prominent authors can hardly afford to lose sales by missing out on Amazon’s platform or accepting a lower royalty rate on the majority of their audiobook sales.
How Spotify Is Using AI to Shape the Future of Audio
Like every tech and software company, Spotify is looking at AI to improve its products and stay competitive.
Since 2024, it has been testing AI Playlist in a beta version and has been launched in 40 markets in April 2025.
Source: Spotify
This AI DJ could ultimately change how people are experiencing and discovering new music, with the algorithm playing an even greater role in finding new artists. As Spotify is probably the company with the most in-depth data about its users’ musical tastes, it will likely perform best in that role.
In the future, personalized remixes, edited songs, or other AI-driven modifications could be possible, but the reaction of artists, labels, and other key copyright holders will likely impact how this can be deployed and what it means for the musical industry as a whole.
Meanwhile, AI-generated tracks are a new threat Spotify is dealing with. These “fake songs” are listened to automatically by bots, racking massive AI viewership and stealing from the pool of money from real subscriptions and from real artists.
Ironically, it is likely with advanced AI detection systems that Spotify will identify and nullify these nonsensical AI songs listened to only by scamming AIs.
Spotify’s Future: Growth, Challenges, and Opportunities
Spotify is the dominant actor in the distribution of music and is likely to stay in that position for the foreseeable future. It is also the leader in the podcast sector, even if this is a type of content where diffusion is a lot more fragmented.
In audiobooks, Spotify is, however, the underdog, having to fight against the deeply entrenched position of Amazon over the book industry, built since the very inception of the tech giant.
As Spotify is now reporting positive net income, the looming doubts that the business model will never make money are disappearing, after almost 2 decades of interrogations about the ability of scale to solve Spotify’s profitability problems.
Now the valuation will need to be assessed against the company’s growth prospects. If only the podcast segment is a growth segment for it, it might be a little pricey in terms of valuation multiples.
If, however, the audiobooks and other audio content, including AI-driven listening, can take off and see Spotify become a dominant player here too, then the current valuations are likely to be seen in hindsight as a deep discount.