Spotify might actually start making a profit soon

15 Sep 2016

Spotify’s tally of paying subscribers has jumped 33pc in just six months, reaching 40m according to the company. Could streaming music actually become a profitable business model?

The music industry is incredibly hard to crack in this digital age. Tangibles went through several eras – vinyl, cassettes and CDs – before downloads came to the fore with the likes of Limewire and Napster. Then iTunes brought a bit of profitability to proceedings.

Now, streaming is the favoured choice for many music fans. So far, no company has found a clear way to profit from it. But perhaps Spotify is about to change that.


Spotify on the up

Yesterday (14 September) Spotify CEO and founder Daniel Elk tweeted, “40 is the new 30. Million” – the streaming service’s paid subscriber figures are rising fast. That 30m figure was achieved as recently as March, making this a 10m (or 33pc) rise in just six months.

Considering that even 30m paid subscribers were not enough for the company to break even – an 80pc rise in revenues to €2bn in 2015 saw the company still post losses of €173m – a speedy spike in income will be a welcome boon to Spotify.

In 2014, the company had around 10m paid subscribers. That figure doubled in 2015, before doubling again in 2016. And we’re still only in September.

Competition everywhere

Tidal has around 4.2m paid subscribers, though mounting losses make its future bleak. Apple Music has around 17m paid subscribers and Pandora is set to launch two new streaming products. But the elephant in the room is YouTube.

YouTube Red offers up a potentially industry-consuming option should it fully catch on. YouTube’s video streaming subscriptions are about to skyrocket, too. Having a 1bn-strong user base may be the only profitable option.

Another problem looming on Spotify’s horizon is maintaining its current library. A few weeks ago, reports emerged that Spotify’s deals with three of the largest record labels in the world have all expired, with Universal, Warner and Sony currently on rolling deals.

While Apple Music is thought to pay 58pc of its revenues towards labels and artists, and other rivals pay up to 60pc, Spotify negotiated a 55pc rate back in 2011.

There are additional payments paid out to artists and labels by all streaming providers, but Spotify is still reportedly on the lower end of the payback spectrum.

According to MBW, the company is seeking to drop that rate even further in current negotiations, which appears to be creating an impasse with major labels.

Spotify image via Sorosh Tavakoli/Flickr

Gordon Hunt was a journalist with Silicon Republic