Swedish start-up Epidemic Sound tunes into demand for original music

STOCKHOLM (Reuters) - Epidemic Sound, backed by Spotify’s investors, is one of a new wave of music companies expanding rapidly on the back of demand for easy access to original music from commercial users, especially YouTubers.

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The global market for digital content creation, a rapidly expanding part of the entertainment industry and the quickest growing part of Epidemic’s business, is valued at nearly $11 billion and is expected to grow around 17% a year until 2025, according to market research firm Kenneth Research.

Sweden's Epidemic managed to double its revenue last year to 234 million Swedish crowns ($24 million), as it muscles into the same market as traditional record labels, such as Universal, which hold copyrights and charges royalties, while also competing with tech giants like Apple APPL.O which recently launched a music for business service.

Epidemic has a royalty free business model, making up-front payments for each track bought from musicians. It splits all music streaming revenue from a track 50/50 with composers and retains the exclusive rights to the songs in its library.

Its main competitors include production music company Audio Network, owned by Canada's Entertainment One ETO.L, whose subscribers get access to over 150,000 wholly-owned tracks for videos, TV and radio productions, and MusicBed, which licenses music to video creators.


Epidemic has just appointed former Google GOOGL.O and Spotify SPOT.N director Kate Vale to head its North Americanexpansion, and is opening an office in South Korea and has its eye on the Spanish-language music scene in South America too, its CEO and co-founder Oscar Hoglund said.

“We’re seeing this massive macro-drive where the internet is turning all into video and that underlying force is driving our entire business,” Hoglund said, at the firm’s new, second office, part of a buzzing tech scene in the heart of Stockholm.

“The gig economy and e-commerce also drive us a lot.Everyone can become an entrepreneur now. They need access to music,” Hoglund said, adding that competition from e-commerce is also making music increasingly important for traditional shops and restaurants trying to stand out.

Although loss-making, Epidemic Sound was valued at $370 million in a fundraising in July, according to a source. It is adding tens of thousands of new customers and hundreds of tracks every month.

Among its top sellers are Sarah the Illstrumentalist’s hip-hop music, which features on U.S actor Will Smith’s YouTube channel, while Johannes Bornlof’s “Reminiscene” is one of its most popular classical tracks.

Hoglund said he expects to keep doubling sales, while profitability must wait. “We have a strong focus on profitability but we’re investing a lot in our growth right now so on a company level we’re purposefully not profitable,” he said.

Private equity firm EQT EQTAB.ST owns a 40% stake in the company while employees and the founders have another 40% and Spotify-backer Creandum has 20%. It made a loss of 67 million crowns last year.

“We believe Epidemic will continue to be positioned as oneof Europe’s fastest growing tech companies and are excited to bepart of this journey,” EQT partner Victor Englesson said.

Reporting by Helena Soderpalm; Editing by Elaine Hardcastle