Friday 30 September 2016

Spotify's revenue hits €2bn, but when will it make money?

James Titcomb

Published 25/05/2016 | 07:50

Daniel Ek
Daniel Ek

Spotify has turned the music industry on its head by replacing one-off music downloads with an all-you-can-eat subscription streaming service, but it is yet to prove that it can deliver profits.

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A filing from the Swedish company, registered in Luxembourg, showed that despite revenues almost doubling last year, the company is making a bigger loss than ever.

The new figures, which come as Spotify’s paying users reach 30 million, could raise questions about whether the subscription model, which accounts for a growing proportion of music industry revenues, is sustainable in its current form.

Nonetheless, the company called 2015 “in many ways, our best ever year”. Revenues rose 80 per cent to €1.95bn (£1.5bn) last year, bolstered by a growing number of subscribers, while losses rose by just 10 per cent to €173m.

Spotify is succeeding at encouraging more people to pay for its services, but its rapid global growth has also meant pay-outs to artists and publishers increased. Of Spotify’s 89m users at the end of 2015, more than two thirds are on its advertising-supported free service, although ads accounted for just 10.1pc of revenue.

“The economics of the freemium tier remain challenging and every single freemium user is lossmaking on a gross margin basis,” said Alice Enders of Enders Analysis. “What’s heartening is it is paying off in terms of subscribers. We think it’s made very good progress this year.”

Ms Enders said Spotify still had to significantly grow its base of paying users to be near to profitability, and that it could adjust its model, for example by raising prices for customers.

Spotify, which launched in 2008, has expanded to dozens of countries and is now the biggest music streaming service in the world, although it faces hot competition from Apple, which launched its own subscription offering last year. Streaming revenues to the music industry rose 45.2 per cent last year to £2bn – around 20pc of total revenue.

“We believe our model supports profitability at scale,” Spotify said.

Telegraph.co.uk

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