Spotify targets Pandora with free iOS radio app

Those forking over cash to get Spotify on i-devices can soon get Spotify Radio for free

Streaming music company, Spotify, is gunning for the Pandora audience with its new radio service set to launch for iOS devices.

Until now, those that wanted to have the Spotify content play on their iPhones or iPads had to pay the monthly premium fee or only listen to songs they already own -- making the concept of downloading the app relatively useless. This places Spotify firmly in the Pandora sector of streaming music..

Spotify has offered its radio service within the Spotify desktop application since mid-May and now is expanding to the i-devices.

“Our focus has always been on creating an amazing user experience,” Spotify product VP Charlie Hellman, said in a statement. “The radio feature we’ve added to our iPhone and iPad apps gives users the ability to discover, listen, and save what they like on the go — all within one app — for free.”

This new radio function also means more tools for those using the premium service as well -- where they will have no advertising and unlimited skips at their disposal.

Just like within Spotify's desktop app, you can pick a song, album, or artist and build a radio station using it.  The unlimited free radio feature only applies to users in the US.

Competitors like iHeartRadio, Pandora and Rdio now are at a disadvantage because they only offer the station creation service and do not let users play any song they want on-demand.  

Currently this update is just for iOS and not Android devices.

Just after the news of Spotify's new offering hit, Pandora (NYSE:P) share felt a tumble and dropped more than 5% to $10.85 in early morning trading.

Spotify's growth

Back in March we heard whisperings that Spotify was supposedly trying to get the company valued at $3.5 billion. It was only a few months since Spotify raised a $100 million round at a $1 billion valuation so a more than three-fold increase in less than a year is an exceptional jump, one that many may be hesitant to make, especially with so many services offering similar music streaming and Pandora continuing to peter on the public markets. 

Founded in 2006 by Daniel Ek and Martin Lorentzon, the UK-based music service has 15 million songs licensed and 10 million users -- three million of which pay monthly service fees.  

Given its significant presence in music, its last round of funding was back in June from DST, Kleiner Perkins and Accel, bringing the total VC capital to more than $189 million. 

Considering that Spotify is a musical example of Hulu, which almost sold for $4 billion last year, it isn't unthinkable, and Spotify has up the paid membership growth similar to Hulu, but hasn't seemed to really let its US roots take hold for very long before expecting a serious pop in valuation. 

At the start of the year, Hulu's premium paid service, Hulu Plus reached the 1.5 million paying customers mark. 

That's a 5X growth rate from the 300,000 paying subscriber base signed up to Hulu Plus at the end of 2010.  Hulu Plus offers more shows, movies, ad-free viewing and access to full series' rather than selected episodes.  

The company grew 60% from 2010 to approximately $420 million in revenue for a service that allows users to watch Hulu content on their computers, TV, gaming devices, tablets and smart phones. 

Netflix still holds the lion's share of online television and movie watching for the same $7.99 rate of unlimited streaming on multiple devices, even after loosing nearly a million subscribers due to rate hikes and missteps. Netflix still clocks in at close to 23.8 million subscribers.

Firms said to have passed on the deal include late stage firm TCV and every-stage-investor Andreessen Horowitz, according to Business Insider.

Spotify has not returned requests for comment, but it will be interesting to see just how big of a round of funding this will be and if the valuation does, indeed, end up in the $3.5 billion mark. I would expect if it is then we may not have to wait much longer before the company starts offering more services to prove its money-making abilities. Perhaps cutting strong deals to sell content and maybe even music videos like Vevo has. 

Perhaps Spotify has some great growth numbers to disclose, but if the membership and pool of people paying for content hasn't skyrocketed, and it doesn't have some sweet deals in the pipeline then this new valuation may be little more than a pipedream.