Spotify Music Streaming Starting to Catch On (P, SIRI)

Music streaming provider Spotify just announced that it has reached a milestone of 3 million paid subscribers and about 15 million total users. That’s a pretty good numbed, but competitors Pandora Inc. (NYSE: P) and Sirius XM Radio Inc. (NASDAQ:) are much larger, with about 40 million users on Pandora and 20 million subscribers to Sirius. Pandora is advertising driven, Sirius is subscriber driven, and Spotify is somewhere in between.

Both Pandora and Sirius have been in business for at least 10 years, while Spotify has been around for less than 3 years. Spotify claimed just 500,000 paid subscribers less than a year ago, but jumped that number to 2.5 million in November following a summer release in the US. Spotify’s tight integration with Facebook is very likely the catalyst for the 500,000 new subscribers since then.

Even though Spotify is growing faster than either Pandora or Sirius, it still has a long ways to go to draw even. But if the company succeeds in proving that cheap access to essentially all recorded music can make money both for the music companies and for Spotify itself, then Pandora and Sirius could feel some pain.

The music copyright holders are currently sticking Spotify with huge upfront fees, which should moderate as the service gets more popular. If the royalty payments rise, Spotify will have a hard time staying alive.