4 ms·

Good point - it's all or nothing for Spotify, they are not profitable at current scale and need critical mass re: subscribers + defense against Apple, and if th

Good point - it's all or nothing for Spotify, they are not profitable at current scale and need critical mass re: subscribers + defense against Apple, and if they don't get there, then they are dead anyhow.

mrep 11y ago
> they are not profitable at current scale How? They are making approximately a 1 billion dollars a year (30 million subscribers * $10/month * 12 months/year * 30% cut). Their engineers are probably paid less too since they are not based in the US. The only thing i can suspect that they are blowing that much money on is marketing but even that just seems ridiculous unless they are losing that much on the freemium users. Can someone explain this to me?
- JonFish85 11y ago
  Catalog rights is probably a good portion of it...
- joshjkim 11y ago
  There's a couple answers here - as you mentioned, marketing is a huge cost, and they have to support a massive global ad sales organization as well to support the free tier. IMO, what's really more problematic and complicated is their economic arrangement with the major labels, which, while ostensibly "70/30" is actually way more complicated than that. The article does a decent job of explaining it: http://www.theverge.com/2015/5/19/8621581/sony-music-spotify-contract http://www.theverge.com/2015/5/19/8621581/sony-music-spotify... TL;DR: to induce a major label to sign, Spotify had to give them a sweetheart deal, including minimum per stream payments, minimum % of ad revenue, and free ad space. The really tricky things to consider are: usage-based and per subscriber minimums. Hard to determine exactly, but it's highly possible that Spotify is much worse off than the 30/70 spotify/label split. Also, note that there's a good chance the contract is already re-negotiated since that was published, and given Apple Music, likely not in Spotify's favor.
  - spiralpolitik 11y ago
    This is Spotify's main problem. They own nothing and sharecropping with other peoples property never ends well. The labels can bleed them to within an inch of their life without any risk as there are other companies with additional revenue streams to support themselves that will offer better deals and take up the slack.
- mdorazio 11y ago
  We won't know for sure until they file for IPO and release their financials, but remember that Spotify doesn't own any music. Every stream they play they have to pay the artists/labels for, so their margins on subscriptions are probably slim to start with. LinkedIn also tells me they have over 2,200 employees, which to me is insane. Even if their salaries are merely market average, that is a huge chunk of change they are paying in labor costs. Add in office space, marketing spend, server/bandwidth fees, etc. and you get to where they are today.

mrep 11y ago

> they are not profitable at current scale How? They are making approximately a 1 billion dollars a year (30 million subscribers * $10/month * 12 months/year * 30% cut). Their engineers are probably paid less too since they are not based in the US. The only thing i can suspect that they are blowing that much money on is marketing but even that just seems ridiculous unless they are losing that much on the freemium users. Can someone explain this to me?

JonFish85 11y ago
Catalog rights is probably a good portion of it...
joshjkim 11y ago
There's a couple answers here - as you mentioned, marketing is a huge cost, and they have to support a massive global ad sales organization as well to support the free tier. IMO, what's really more problematic and complicated is their economic arrangement with the major labels, which, while ostensibly "70/30" is actually way more complicated than that. The article does a decent job of explaining it: http://www.theverge.com/2015/5/19/8621581/sony-music-spotify-contract http://www.theverge.com/2015/5/19/8621581/sony-music-spotify... TL;DR: to induce a major label to sign, Spotify had to give them a sweetheart deal, including minimum per stream payments, minimum % of ad revenue, and free ad space. The really tricky things to consider are: usage-based and per subscriber minimums. Hard to determine exactly, but it's highly possible that Spotify is much worse off than the 30/70 spotify/label split. Also, note that there's a good chance the contract is already re-negotiated since that was published, and given Apple Music, likely not in Spotify's favor.
- spiralpolitik 11y ago
  This is Spotify's main problem. They own nothing and sharecropping with other peoples property never ends well. The labels can bleed them to within an inch of their life without any risk as there are other companies with additional revenue streams to support themselves that will offer better deals and take up the slack.
mdorazio 11y ago
We won't know for sure until they file for IPO and release their financials, but remember that Spotify doesn't own any music. Every stream they play they have to pay the artists/labels for, so their margins on subscriptions are probably slim to start with. LinkedIn also tells me they have over 2,200 employees, which to me is insane. Even if their salaries are merely market average, that is a huge chunk of change they are paying in labor costs. Add in office space, marketing spend, server/bandwidth fees, etc. and you get to where they are today.