When Spotify stock starts publicly trading later this year, there will no doubt be a frenzy of people looking to buy, even though the company lost $1.4 billion last year alone. And given the peculiarities of the way music is licensed to streaming services, it’s doubtful that Spotify (or any other streaming company) will ever be in a position to make any money.
At the same time, record labels are making hundreds of millions (billions?) from the proceeds of streaming, far more than they are from physical sales. This obviously can’t continue. So is Spotify really worth $20 billion?
New Atlas takes a look at the finer points of Spotify’s IPO documents and has to ask the question “Is streaming doomed?”
The Spotify filing gives a fascinating look behind the curtain at the world’s largest music streaming subscription service. The company reports having 159 million monthly active users as of December 2017, including 71 million paying subscribers. While generating consistent revenue growth over several years, culminating in €4.09 billion (US$5 billion) at year end 2017, the company has also incurred consistent net losses, peaking recently at €1.235 billion (US$1.5 billion).
The numbers seem rather clear, as more people subscribe, more songs are streamed, resulting in more royalties paid to record labels and music publishers. Spotify suggests in its SEC filing that its primary growth strategy is to penetrate new markets and expand its subscriber base. But the fundamental concern still remains over whether the numbers will ever be able to generate a profit for a music streaming service.
Music entrepreneur, and current head of Apple Music, Jimmy Iovine has been very vocal about the fundamental issues facing streaming music subscription services. In a frank interview with Billboard last November, Iovine starkly suggested that music streaming, as a sole business model, is “not a great business.” And for a company like Spotify, which has no other revenue source, it could be a signal of ultimate doom.