Spotify users soar, but profits still a distant dream

16 Jun 20176 Shares

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Spotify. Image: M-SUR/Shutterstock

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Spotify is evidence that there’s no money to be made in streaming, even when user numbers hit record heights.

2017 is a pivotal year for Spotify, with key acquisitions, new deals with record labels and profit point in greater focus than ever before.

The latter, though, is proving elusive. Despite reporting a growth in paid subscribers to 50m in March (up from 30m one year previous), losses remain. And they’re big.

Spotify

The Swedish company released its 2016 figures today (16 June), with €539m marking its largest loss to date.

Revenues at Spotify are soaring, rising 80pc to around $2bn in 2015, then growing to around $3.3bn in 2016. It also reported a growth in general users, up to 140m. The lack of correlation between the figures is clear.

Key costs for Spotify are payments to rights-holders of music. The company recently came to major agreements with Universal Music Group and Merlin, with Sony and Warner Music Group on the way.

Under the new terms, Spotify says it has agreed to pay a minimum of more than $2bn to the former duo over the next two years.

The thinking behind the new, costly deals is that better royalty rates will see Spotify make more money as it acquires more and more users.

Many in the streaming industry will be watching closely as, if Spotify can’t run in the black, what chance have any of its rivals?

The company said advertising sales revenue, the driver behind the free service it provides to the majority of its users, rose 50pc in 2016, with hopes of clever acquisitions bringing in better revenues an obvious tactic.

In recent months, Spotify acquired French start-up Niland, which focuses on optimising music using AI, and Sonalytic, a music discovery company. In 2016, it also snapped up Dublin-based Soundwave, which creates technology to track what songs people are listening to on their smartphones in real time.

Earlier this year, Daniel Ek, Spotify’s chairman and CEO, was recognised by Billboard as the entire music industry’s most powerful person. The company’s much anticipated IPO could also be nearing fruition.

Martin Lorentzon, co-founder of the company, recently told a radio station in Sweden that there are no plans for a listing, though at the time, Reuters quoted sources as saying otherwise.

“Martin is our co-founder and a board member, but not a spokesperson for the company. Spotify hasn’t confirmed any definitive plans to go public. It remains an option for us,” said the company.

Spotify. Image: M-SUR/Shutterstock

Gordon Hunt is senior communications and context executive at NDRC. He previously worked as a journalist with Silicon Republic.

editorial@siliconrepublic.com