So that's like ~$400M of income per month? Their expenses are mostly royalties and those are probably spare change compared to that income. Not bad!
Friendly fyi... if we're talking about a company's financials instead of a human's salary, the precise term would be "revenue" instead of "income". Income would be revenue minus costs. Spotify doesn't have any positive income.[1]
>Their expenses are mostly royalties and those are probably spare change compared to that income.
No, it's not "spare change". In fact, the unfavorable licensing terms[2] to the record labels (58% payment) are preventing Spotify from turning a profit. (Keep in mind that so far, Spotify has never turned a profit.)
They also took on $1 billion in new debt with exploding terms[3] which pressures them towards an IPO. A bad timing of the IPO wouldn't help them at all.
I don't see how the financial numbers work in favor of Spotify. It looks like the only companies that can afford to stream music would be Amazon/Apple/Google.
Digital music streaming is a brutal business and all 3 major streaming companies Spotify/Pandora/Rhapsody have been losing money for years.[4] It's now 2016 and nobody has found a way to make profits. Their subscriber growth numbers keep making the headlines so people mistakenly assume those companies are financially successful when they're not.
[1]http://www.statista.com/statistics/244990/spotifys-revenue-a...
[2]http://www.musicbusinessworldwide.com/spotify-contract-three...
[3]http://www.fool.com/investing/2016/06/17/will-spotify-have-a...
According to the source you posted Spotify has been given favourable license terms since it started whereas competitors like rdio have had to pay more and have since went bust.
I can see why that report's statement is confusing.
To clarify, that sentence was only comparing Spotify's "better" licensing terms to Rdio. It's about the licensing costs relative to a competitor.
However, in absolute numbers, it's a licensing cost percentage that's still too expensive. Spotify wants to renegotiate the percentage to be less than 50%. Spotify's "better" rate of 55% compared to Rdio 60% did not meet this more favorable threshold to turn a profit.
The "favorable licensing terms" I was talking about was in absolute terms (company profitability) and not relative terms (compared to another competitor).
Got it and I totally understand exactly what you're saying. It's a matter of perspective and what you said is also true.
That said, let's put some context and boundaries around "unfavorable terms" when it's used to analyze Spotify's financial situation.
If we use an alternative perspective of measuring how Spotify can compete with Apple who has solidified an anchor price[1] of $9.99, it means that Spotify is heavily pressured to not be more expensive than that.
Yes, Spotify could theoretically charge more such as $11.99 to cover the higher licensing percentages of 55% or 58% but they probably feel that it kills their demand curve.
Spotify's pricing has to work in between "free" (piracy) and Apple's $9.99. They don't have the leverage or differentiation to convince consumers to pay $11.99.
So one perspective is that Spotify needs to increase subscription prices to whatever level they need to in order make a profit and to hell with losing millions of customers to Apple's $9.99 deal. Possible eventual outcome is that Spotify dies in bankruptcy because of dwindling user accounts.
The other perspective is that $9.99 is a too much of a consumer-ingrained psychological price so don't bother fighting it. The better chance of survival is to renegotiate with the record labels for more "favorable terms" so it's possible to make a profit at $9.99.
So far, the digital music streaming business can't figure out the money puzzle to make everybody happy. Many consumers already think that $120 a year is too much to pay. At the same time, many artists believe they get too little money[2].
tldr; Spotify can't lose a price war
[1]https://en.wikipedia.org/wiki/Anchoring
[2]http://www.digitalmusicnews.com/2015/09/24/my-song-was-playe...
Though I may misunderstand what you're asking for, as I don't quite get the Last.FM comment.
Gross Margin = Gross Revenue - COGS.
We're down to under $160M.
Spotify has (or had) 1600+ employees. If these were US (CA) based, we'd estimate higher, but since Europeans are relatively "cheaper", let's call it $75K/employee all-in (taxes, benefits, etc.). That's probably light, and doesn't take into account rent or data centers or any expenses, and that costs them ~$120M.
That leaves $40M for "everything else". Assuming that their employees are indeed "as cheap" on average as guesstimated above.
Conclusion: they are surely losing money.
Also, you can have a family subscription for 6 people for 8.99 EUR (~10.1 USD). I wonder, if such subscriptions are counted as one, or for every member separately.