Spotify’s latest financials indicate that it might have its first full year of profitability. Here’s how they’re doing it.
The thing about streaming music services is that they’re usually so hamstrung by the licensing agreements under which they much work, that it’s almost impossible to turn a profit. The more money comes in, the more they have to pay the same percentage out. If revenues and costs rise in lockstep, there’s no opportunity to increase margins.
Unless you’re Spotify. By diversifying behind just streaming music (podcasts and audiobooks, for example), the company has managed to keep users engaged on the platform on things other than music, the less music royalties they have to pay out. Spotify also saved a chunk of money by declaring that they will no longer pay any artists for any song with fewer than 1,000 streams. When you realize that a staggering 86% of all songs on Spotify have been streamed less than a thousand times (and 81% of Spotify artists have fewer than a thousand monthly listeners), those now-defunct payments add up fractions of a cent at a time.
UPDATE: After this post appeared, the Global Head of Music Communications sent me a note:
“Per our blog post on the topic: “Starting in early 2024, tracks must have reached at least 1,000 streams in the previous 12 months in order to generate recorded royalties. Spotify will not make additional money under this model. There is no change to the size of the music royalty pool being paid out to rights holders from Spotify; we will simply use the tens of millions of dollars annually to increase the payments to all eligible tracks, rather than spreading it out into $0.03 payments.”
The company’s latest financial results say that Spotify now has 252 million paying subscribers, up 12% from this time last year. Each month, Spotify has about 626 million users. That’s up 2% from 2023.
The biggest growth came in Latin America, although Europe is still the company’s biggest territory, providing 38% of users. North America is second with 27%. All this adds up to an annual operating profit of US$1.5 billion for 2024.
