When it comes to the world of streaming music, no one is bigger than Spotify. With 50 million people paying for a premium subscription, that’s about 30 million more than Apple Music, its closest competitor. That 50 million represents a 25% increase in just six months.
Fantastic, right? So why isn’t Spotify profitable? Why does it continue to hemorrhage money? The answers–revealed here in Quartz–show why this space is so messed up.
Spotify’s most recent filings show that while it had record revenues of $2.18 billion in 2015, it also had a loss of $194 million. Two main reasons stand behind the company losing so much money: It pays out a lot, and charges little.
As an on-demand music buffet, Spotify must regularly pay to license its library of 30 million songs from the labels and artists who own them—which gets expensive fast, causing a staggering 80% of the company’s cash flow to go straight back out as copyright payments. Revenue from users isn’t keeping up. The service’s premium subscription tier ($9.99 a month for users in the US and roughly equivalent around the world) does draw in more money than its free, advertisement-supported tier—but paying subscribers only make up 30% of Spotify’s overall user base; the majority of people are still listening for free.
Ah. And with copyright hearings on right now in the US–it’s possible that new statutory streaming rates will be set–it could get a lot more difficult for Spotify to make any money. How is this ever going to get fixed? No one knows.