…is that Spotify continues to hemorrhage money. Lots of it.
The company reports that despite its huge market penetration, it lost $194 million in 2015. Good news again: The growth in losses grew at a rate less than what it saw in 2014.
Spotify’s big problem is subscription revenues. The freemium tier–which, frankly, is just a tick or so below what is offered to full-on subscribers–accounts for most of its users. It’s funded totally by ads. Take a look at this graphic posted by Music Business Weekly.
Spotify’s payouts to content creators from its ad-supported revenue stream are lower than what they pay out from subscriber revenues. (This is what they negotiated with the record labels and all the collectives, so don’t think for a second that Spotify is being arbitrarily cheap. And remember that in these negotiations, the rightsholders held all the cards.)
Late last year, I had a conversation with a highly ranked executive of a very large American radio group. “Spotify is valued by the markets at $8 billion, which is more than the entire US radio industry. Yet the company is losing $200 million a year. What am I missing?”
It does beg the question of how long investors are willing to plough money into Spotify, a company competing with Apple (Apple Music) and Google (Google Play Music and all the various flavours of YouTube), two entities with bottomless vaults of money. Apple and Google can continue to run their streaming services at a loss. But Spotify?
Apple and Google can continue to run their streaming services at a loss. But Spotify? Or is it now officially too big to fail?
More at Music Business Worldwide.
Meanwhile, Music Industry Blog points out that Spotify’s margins are being squeezed by the costs of music rights, which just keep rising.