Spotify is a media streaming company that is arguably one of the biggest in the field. The startup launched in October 2008, has grown to become a dominant force in the industry. It now competes with some reputable streaming companies such as Apple Music and Google Play Music, which are well-established with enormous financial backing. Spotify has expanded into several new countries since its inception (Jesse & Ronald, 2012). Estimates report that Spotify had a customer base of 75 million subscribers as of March 2016. The current customer base is a tremendous increase from the 3 million subscribers it had at the beginning of 2012.
Streaming service is one of the industries whose popularity has grown in recent years with the advancement of technology. More people with smart phones and computers are migrating from the conventional physical purchase of music to premium streaming and downloading. This has created the need for reputable streaming services such as Spotify, which strive to offer just that.
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From an initial number of few employees, the company now employs over 1,300 and in 2015, its value was estimated to be $8.53 billion. The company is now in 59 countries around the world. Its expansion into new territories has however been criticized as slow as compared to some new entrants, such as Apple Music, which in February 2016 was present in 113 countries.
The company’s operations are based on the freemium model of revenue generation. Spotify offers premium services besides the free services available on registration. Revenue is created from the money paid for premium features and advertisements on the site. In earlier years, revenue was only collected from advertisements. There are many types of ads that the company carries out to date. These range from audio ads between the streaming content to home page takeovers and billboard ads on both the Spotify App and online website.
As shown in figure 1 below, the numbers of both the active users and paying subscribers have grown significantly. As of March 2016, the streaming giant had more than 20 million premium users among the 75 million active users. This has resulted in the growth of the company’s income (Marie, 2013).
Figure 1. Graph showing the growth of Spotify’s active users and paying subscribers from January 2012 to December 2014.
In a quest to attract more customers, Spotify has been engaged in mass advertisements and offering of promotional offers to the users. For instance, it provided premium codes to some of the customers in 2009. This would enable them to receive between one and twelve months of premium subscription. The company also introduced new types of accounts in 2010. The accounts were the Unlimited Account and the Open Account. This gave better deals and might have influenced the mass registration of new users (Kevin, 2011).
A significant percentage of the revenues generated goes to paying royalties. This is paid to the right owners of the streamed content. The company states that it pays between $0.006 and $0.0084 per stream. The payments are varied depending on the artist’s country and their royalty rate. The payments made amount to 70 percent of the income generated from the content while the company keeps 30 percent.
The revenue of Spotify has grown steadily over the years. In 2012, the Dow Jones reported that there was an increase in the income from 430 million Euros to 746 million Euros in one year. Despite the growth, losses are still being recorded by the company. This has led it to be labeled as the “money-losing company” in recent times.
The Loses made by the company spun back to its creation in 2008. According to some sources, Spotify has made losses amounting to over $200 million. A report in 2012 indicated that the net loss made by Spotify in 2011 was $59 million. The question arises as to why such significant losses are posted. Spotify has been silent on the issue choosing not to comment on the subject. High royalties paid to record companies could be the leading cause of these losses. What’s more, the high licensing costs that Spotify is required to pay the recording companies coupled with high staffing costs may be to blame for the company’s failure to record profits (Sven).
Spotify is still a private company implying that it is yet to join the stock market. There have been reports of possible IPO in the near future. One of its competitors, Pandora went public in 2011. The stock of Pandora has been in fluctuation, but its move to an IPO shows that people have an interest in the streaming industry. Spotify could be exercising caution as it gets ready to delve into the stock market.
Financing from investors is one of the principal sources of resources to run the company. Over the years, the company has managed to raise funds and increase the value of the company to a whopping $8.543 billion in 2015. In March 2016, it was reported that the company had received $1 billion from its investors. Following this reception Daniel Ek, the founder and CEO of the streaming company, promised the investors that Spotify would go public soon.
Artists have regularly condemned Spotify as not being able to compensate them fairly. The amount per stream paid to artists is still petite and not significant unless one receives massive views on the platform. Taylor Swift pulled her music from the streaming service in 2014 despite being the most highly paid in that month. She said that the service did not work for her echoing the voices of many others who feel the compensation is meager.
Another concern for the company at the moment is whether it will be able to monetize its client base to achieve profits which are an expectation from the investors. Several new strategies need to be employed for this to be achieved. Spotify needs to strike a balance between the expenditure and the income generated to obtain viable profit (Kevin, 2011). The Figure 2 below compares some of the leading Streaming services that Spotify is in competition with alongside their prices and the number of listed tracks.
Figure 2. A table comparison of the major streaming service providers.
| Service | Price/Month | Tracks in millions |
| Apple music | $10 | 30 |
| Beats | $10 | 20 |
| Google Play | Free to $10 | 30 |
| Pandora | Free to $5 | 1 |
| Rhapsody | $10 | 30 |
| Spotify | Free to $10 | 30 |
| Tidal | $10 to $20 | 25 |
In 2014, Spotify had a market share of 49 percent of global streaming subscriptions. Today, it faces stiff competition from new entrants in the industry. As the race to offer streaming services intensifies, only time can tell whether Spotify will be able to stay ahead of the pack. Since its creation, the company has been reliant on venture capital. If the company goes public in the near future, as promised by its CEO Daniel Ek, speculation is high on what its stock value would be considering the past loses and the over $8 billion value estimation.
References
Jesse, R. & Ronald, C. (2012). Spotify. New York: VSD
Kevin, R. (2011). Spotify: High-impact Strategies - What You Need to Know: Definitions, Adoptions, Impact, Benefits, Maturity, Vendors. New York: Emereo Pty Limited
Marie, H. (2013). The Theory of Access Replacing Ownership on the Example of Spotify . GRIN Verlag
Sven, G. (2016). Spotify’s Revenue Rose in 2013, But Losses Continued. Retrieved from http://www.dowjones.com/scoops/spotifys-revenue-rose-2013-losses-continued
