
Spotify loses $59.1 million on $244.5 million in revenue - Hates_
http://hypedsound.com/news/details/SPOTIFY-FINANCIALS-DEEMED-UNSUSTAINABLE
======
nlh
I'm a huge Spotify fan. In fact, I love it so much that I haven't purchased a
song from iTunes in months. That alone should speak volumes about their
position in the industry - I can't be alone here, and that means that for some
significant portion of people, money has stopped going to Apple for music and
now goes to Spotify.

But here's the thing -- Spotify is too cheap. Their service is amazing and
far, far too inexpensive relative to what they provide. They provide a bulk of
their service for free, and people like me who want a bit more pay $10 a
month.

To get access to 5,000 songs via iTunes would cost me (roughly) $5000 -- and
people are willing to pay it. That's 500 months of Spotify (42 years!)
subscription to generate the same amount of revenue.

So while I agree that music licensing costs, particular for radio-like
services like Pandora, need to go down to be more in line with broadcast
rates, I don't think that's what's hurting Spotify here. I think they're
providing far too much value for what they get paid.

~~~
thecoffman
I disagree on it being priced too low. I realize that in some sense, they have
to play to cards they are dealt by the labels - but 10 bucks a month is far
too much for streaming music. If Netflix can stream unlimited HD video for 8
bucks a month, there's no (technical) reason audio should be more expensive
than that. The only thing holding them back is the politics of the music
industry. IMO, a fair price point for streaming audio has to be < 5 bucks a
month at the high end. The marginal cost of a song being streamed is basically
zero at technical level.

~~~
ryanwaggoner
You're confusing cost with value.

~~~
thecoffman
I'm aware of the distinction - but in this case - to me at least - the cost
and the value are the same. The value of streaming songs is exceptionally
minimal when they are easily acquired for free via other means. The only value
add in my mind is the convenience of not having to download albums in the
first place. The value of that convenience is tied very closely to the cost of
providing it as I could set up my own streaming service for personal use "at
cost" so to speak with a cheap vps and a collection of downloaded music - or
use something like iTunes match which costs ~$2.00 a month, if I'm willing to
put forth the effort to acquire the music initially.

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staunch
Pretty sure music license "negotiations" involve asking "How much?" and
receiving the reply "How much ya'got?"

~~~
calinet6
Yep, sounds like that's exactly it.

“Virtually every new dollar of revenue went directly to music companies as
royalty payments, evidencing the fact that the more members Spotify adds, the
more money the company loses. In almost a one-for-one scenario, every dollar
Spotify is generating immediately exits the company due to licensing fees.”

This predatory relationship has to stop if the record companies want to exist
at all in the future. I don't think they realize that they're pointing the gun
at their own foot.

~~~
jbigelow76
> This predatory relationship has to stop if the record companies want to
> exist at all in the future.

If I had to gamble on who would be around in 10 years, Spotify or the labels,
sad to say but my money would be on the labels.

~~~
pattern
I don't think the parent was claiming that Spotify would necessarily outlive
the record labels, but rather some new paradigm for music
recording/distribution would disrupt the label's current stranglehold.

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willholloway
The easy answer to this is to raise prices. We need to raise the price of
digital goods if we want to move forward as a post-industrial society. I pay
$36 a year for Pandora, I would pay $72. $3 a month is an insanely good deal.
Before Napster I would easily spend $30 a month on music. Society needs more
money in artists hands, because the robots are coming to take away more jobs,
and we can offset some of that by reducing the labor supply by allowing more
people to earn a living creating digital goods.

Many of you will say that most aren't good enough to be pro artists. I say
that so many more would become good enough through deliberate practice if
financial viability wasn't nigh impossible.

Capitalism as we know it will not survive zero-priced digital goods, robotics
and other forms of automation. Deflation is a specter over all our heads.

Wise nations will look for ways to reduce the supply of labor, instead of an
insane push for ever higher employment levels.

~~~
cdh
Without going near your comments on Capitalism, I don't think Spotify's
situation is as clear-cut as you do. Why would I pay $20, $15, or even $11,
when I can get the exact same service from at least a dozen other companies
for $10/month or less? (Rhapsody, Zune, Slacker, Rdio, etc.)

If they raise prices at all, they're likely to lose a significant number of
subscribers. If they raise prices and somehow keep those subscribers, the
record companies may very well just milk them for the difference in increased
licensing costs.

~~~
willholloway
All of the other companies need to pay licensing costs as well, and I believe
the current licensing costs are unsustainably low.

In the early years of the internet everyone got very excited about free. Free
music, movies, and information. I think that right now society is collectively
learning the same lesson so many developers have learned and posted about
here. Free customers are the worst customers. Charge more. Inflation is
virtuous. Deflation is a downward spiral into the abyss.

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mtgx
Spotify should make it so they can make deals directly with artists and then
promote them in their store, kind of like how Amazon is doing with its self-
publishing platform. They are big enough now for this to work. The problem is
they most likely got forced into signing a non-compete clause with the labels,
and they took that deal. So now they can't do that anymore, which makes them
completely dependent on the labels in the foreseeable future, and the labels
can keep asking for 98% of their revenue.

And next time the labels brag about supporting innovations like Spotify (like
when they did when they wanted to pass SOPA), remind them that they are what's
killing innovations like Spotify, and these services usually achieve success
_despite_ them.

~~~
AndrewDucker
No artist signed to a major label can do deals outside of that deal. The whole
point of their signing is that they have an exclusive deal with the label.

So while Spotify could go direct to some artists, none of the big ones can
make that kind of deal.

~~~
mtgx
They don't have to take all the big ones immediately. Just start a trend, and
some of the big ones might join later once their contracts with the labels
expire. They probably wouldn't be able to put their old songs there, but they
could the new ones.

~~~
AndrewDucker
Well, they can do that. See the first answer here:
[http://www.spotify.com/uk/work-with-us/labels-and-
artists/ar...](http://www.spotify.com/uk/work-with-us/labels-and-
artists/artist-page/)

------
seats
Ouch. Net revenue margins at 2%. There's more top line margin in farming.

Makes me wonder if there isn't an antitrust case here somewhere. Feels highly
predatory by music license holders.

~~~
ajross
Farming isn't a growth bet. Spotify could break even by increasing their
prices/fees by 25% or by reducing their overhead by the same amount. My guess
is that either would be an easy option if their goal was short term profits.
This represents a high burn rate for sure, but it's not inherently
problematic.

That doesn't mean that the content licenses aren't predatory, just that I
don't see the relevance of that argument.

~~~
aes256
_> Spotify could break even by increasing their prices/fees by 25% or by
reducing their overhead by the same amount._

It's not obvious this is the case. If the record companies see Spotify
increasing their revenue, they may just demand higher fees.

That's the crux of the problem here. Spotify need the record companies, but
the record companies don't need Spotify. For now the record companies are
squeezing Spotify for all their revenue, but it's no trouble to them if
Spotify goes out of business. It's a tiny revenue stream for most of these
companies.

~~~
adgar2
> Spotify need the record companies, but the record companies don't need
> Spotify. For now the record companies are squeezing Spotify for all their
> revenue, but it's no trouble to them if Spotify goes out of business.

I suspect Spotify knows this, and is betting on getting too big to fail before
the record companies push them under.

~~~
aes256
I guess that is the strategy they are playing, but I can't help thinking
Spotify are going to be in a weak position no matter how large they are.

Fundamentally, the service they offer is not particularly difficult to
replicate. They take music and stream it to users, supported by either
advertising or a monthly subscription.

They act as a middle man that the big three record labels could easily cut
out, and at the same time these labels can effectively pull the plug on
Spotify at their convenience.

Without the music library, Spotify is nothing.

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fourstar
Wanted to try them out, but they restrict their signups to Facebook only...
What the heck?

~~~
_ikke_
Since recently you can register again without a facebook account. You just
have to scroll down. (<https://www.spotify.com/nl/signup/open/>)

~~~
daleharvey
I would suggest people not in the netherlands not click that link as it sets
your language preference and you need to go searching for the language
switcher :P

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king_magic
That's really a shame. I hope they can turn things around somehow. I've
quickly become a rabid fan of Spotify; I'd happily pay more for the service if
it meant it would be financially sound.

~~~
dsk2012
Paying more isn't going to do much. It looks like they're losing because of
insane licensing costs. Paying more means more goes to the music companies.

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joshryandavis
They have to turn things around. I don't think I could go back to life without
Spotify.

~~~
kyouens
As long as Rdio isn't in the same boat, we'll be OK.

~~~
k-mcgrady
AFAIK all the streaming music services face this problem. The record companies
demand so much off them that they barely break even.

~~~
evertonfuller
'So much'? You honestly think an artist/label getting $0.003 per play is 'so
much'? What world do you live on. At least with iTunes if say 1000 fans your
track, you'll get at least $500 from the sales. But if those same 1000 just
streamed the track from Spotify, they'd each have to play the track 166 times
to get the same royalties.

~~~
nicholassmith
Can you support the $0.003 figure? I've seen widely different figures in a few
faces.

~~~
k-mcgrady
I've seen financial reports from an independent artist (distributing through
CDBaby). Here's the figures:

Spotify: $0.0022 Deezer: $0.0022 LastFM: $0.0005 iTunesMatch: $0.003

These vary very slightly from time to time but iTunes Match has regularly been
the highest.

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encoderer
A good friend of mine is a software engineer in their NYC office.

Some observations:

1) They have really cool concerts in their office regularly, and often have
B-list musicians in their office .

2) They fly all new NYC employees to Sweden for a couple weeks for training
and culture immersion.

3) Being in NYC allows them (it seems) to pay less than comparable jobs here
in San Francisco. Probably because there are far fewer cool startups in NYC to
compete for talent with.

4) The name "Spotify" was a total fluke and accident, one co-founder mis-heard
another, bought the domain, and the rest is history.

~~~
tricolon
> Probably because there are far fewer cool startups in NYC to compete for
> talent with.

I know this is a silly argument, but unless you have some evidence, I would
advise you to take that back. <http://nytm.org/made-in-nyc/>

~~~
encoderer
I don't really get your point.

One Twitter or Facebook can hire as many engineers as 1/2 that list. To say
nothing of other interesting, top-tier tech companies from which there's
nearly a limitless need for more engineers.

I have good friends who are good engineers in NYC, and I live here in SF. They
had a ton of choices from digital agencies, finance companies, and myriad
other places building line-of-business software. Here? Every experienced
engineer I know with a LinkedIn gets several cold-inmails a month for startup
& tech company opportunities.

It's about density. The financial district in San Francisco can fit in about 1
block of lower Manhattan. And the startup community in NYC compares similarly
to the startup community here -- which stretches 50 miles from San Jose to San
Francisco and beyond.

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cocoflunchy
It would be interesting to know if they earn more money on subscriptions or on
ads. If it is the former, then why not cut all free plans and leave only the
subscriptions?

If I understood correctly, they pay a fee to the records company each time
someone plays a song. Even if they're making half their revenue on the free
plan, cutting royalties by something like 95% (just guessing) and losing 50%
of the revenue doesn't seem like a bad idea... Of course they lose on
advertising, but is there something else I'm missing?

~~~
alexmuller
I must be missing something here with regards to revenue. Spotify has 15
million users, 4 million of whom are paid subscribers. So 11 million free
users.

They have two paid plans: $60/year and $120/year.

If we assume the following structure:

    
    
        11000000 free users @ $0.50 ad revenue per year = $  5,500,000
         4000000 mid users @ $60/year                   = $240,000,000
               0 top users @ $120/year                  = $          0
    

For a total of $245.5 million in revenue, already more than reported here. And
those proportions for their two paid plans are clearly ridiculous. But even if
their free users provide $0 in revenue _total_, they still only have 2% of
paid users on their top plan.

~~~
reitzensteinm
You're not taking growth into account - they're still more than doubling each
year. You'd have to use the average user count to do math properly, not
today's user count.

~~~
alexmuller
Ah, dead on! Those user figures are from August this year but the revenue is
listed as 2011. Thanks.

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mwg66
I wasn't expecting to be a fan of Spotify but I have had a subscription on my
iPhone this past year and it has been excellent. I no longer keep iPod
(iTunes-synced) music on my devices.

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bjansn
I'm a premium user for more than a year and I love it! It is indeed cheap, but
making it more expensive won't get them the same number of paying people
paying some amount of money. So from that I'd say that they aim to get more
people to pay for music again. As nlh mentioned, he is not buying music
anymore on iTunes. You could swap iTunes for downloading as well.

Spotify might as easily help artist to release their own music in a seperate
section of the application. I would love to see something like this.

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nhangen
This explains why they've suddenly started spamming me with playlist updates
from my FB friends...trying to crank up the virality factor in order to
increase revenue.

I paid for Spotify for a few months, and thought it was nice, but I much
prefer buying iTunes/Amazon music and syncing it to all of my devices via
iTunes Match.

Until Spotify gets a better recommendation engine, I think they'll suffer to
get revenue where they want it to be.

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paigalhaes
Recently I've hear Daniel Ek talk about the Spotify birth and business model,
it gives you a better ideia of the path Spotify has taken, and answering
questions about the differences about music and video services

<http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2964>

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Tycho
I would pay up to £50 for that service. And if they charged £100 or even £1000
(per month) for that service, I wouldn't consider it unreasonable I'd just
curse my luck fir being too poor.

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evertonfuller
The sooner Spotify shuts down, the better.

~~~
randomchars
No seeders on your favorite torrent site?

Edit: Just realized that you're the anti-streaming guy from above. Here's the
deal: $10 a moth is reasonable for me considering the amount of music that I
listen too. If I had to purchase the music to listen to it I would go back to
torrents. I can't afford to spend $100-200+ a month on music. And that's what
it would cost with digital downloads or CDs ordered online. If I were to buy
it in my country I would have to shell out up to $25 for a CD. That would mean
that I had spend $500 so I can keep my music habits. That is about the median
household income here.

