Spotify loses $59.1 million on $244.5 million in revenue
hypedsound.com
hypedsound.com
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.
At a guess, I think spotify are trying to squeeze themselves into a position where the labels need spotify because otherwise artists just will not have the same reach otherwise, I know I dont listen to a band until they put their stuff on spotify. I have seen labels + bands be more reactive to making sure their stuff hits spotify quickly which seems to show a shift in power, hopefully the trend continues.
It seems we need a tech company that can do 'hollywood accounting' where they give the labels 40% of the 'net' and sadly there is no net.
Broadcast has always been promotion for sales. That's how you sell recordings: you get it on radio. Spotify looks and acts like iTunes. Its replacing the user need for purchasing, its not replacing radio. And yet they want to pay like radio.
So they've disrupted digital sales and cannibalized an industry in doing so.
Oh I know .. we can always go sell t-shirts at our gigs. until the kids figure out how to 3d print those.
Thing is, you have no idea how often that single is played. If the customer are crazy about it the musician would most likely earn more if he listened through spotify rather than buying it. If on the other hand the customer gets bored of it quickly the musician would barely get anything through spotify.
Also, one listening doesn't equal to a lost sale. Especially considering how easy (and wonderful) it is to just be able try new stuff out when there is no barrier or cost associated with it.
Musicians get waay more money from me thanks to spotify than they ever would get otherwise. And I bet there is a whole generation where this is/will be quite common.
There are winners and loser though, those artists that make songs that only last two weeks probably loose on spotify. I see that as a bonus.
Of course you're on the legal site of music consumption now, but don't fool yourself into thinking that artists should be well off thanks to you.
Well known by now, but have a look at this infographic again: http://www.informationisbeautiful.net/2010/how-much-do-music...
I admit I'm a rdio subscriber and artist, but rdio, for me, just serves as a tastemaker, pre-listening source and mobile collection without limited space - everything I like, I buy elsewhere in lossless formats. Sadly, I guess that's a rather rare use of streaming services as people will often see them as a replacement to buying things they enjoy.
I don't consider pirating and yes, if spotify (and all similar services) were shut down and I were forced to buy albums on CDs the artists would get much less money from me.
Also remember that the day I end my spotify subscription I have nothing to show for it. I've spend many hundreds of dollars on spotify and the day I stop paying I will not have a single track to show for it.
How many people actually constantly buys music every month? A monthly spotify subscription isn't much per month but it adds up.
Estimates vary, but $0.0033 is quoted as a possible pay per stream from Spotify. I had some plays on one invoice from a label but it was less than a penny. [for comparison: I've gotten $75 for a single play on BBC]
So for a 99 cent track you would get 300 plays for that price. That means 10 times a day for 30 days if you are really crazy about it (you are either a teenage girl or you are trying to piss off your neighbors). Or 3 times a day for 100 days. Or 10 times a year for 30 years (let's just guess that its highly unlikely that you are still on Spotify or that you are using the same mp3)
[edit: calculator fail]
For a 5 minute song that's 1500 minutes of stereophonic pleasure. 25 hours.
Let's assume you bought the entire album. 10 tracks. That's 250 hours total listening time.
This is what you'll have to do in order for the artist to earn the same amount as your $9.99 album purchase would have brought in.
> Musicians get waay more money from me thanks to spotify than they ever would get otherwise.
By which I'm guessing that you aren't a music collector and you didn't really buy music anyway.
Purchasing music, especially vinyl or nicely crafted packaged CDs is about building a collection that expresses who you are. People come over and you get out the records. They look through your CD or record shelf while they are at your place. This ritual is how people connect, find out about the other person and it opens up conversations. That era is gone.
Digital weakened that and selling digital is just a fake simulation of the era of buying physical recordings. We know its dead, it was transitory and the era of replication is over. Its not just the economics, its abundance.
Still, buying music (even if its a dead art form) is not to obtain a utility value. Its purchasing a signifier of self identity.
I've had Spotify beta since 2008 and I've loved going through the massive back catalogs and listening to stuff. It was insane how much music they loaded into the system back then. Once they opened it up to the public they had to axe most of it when they couldn't get deals with the labels.
Also I don't get your BBC-comparison, did BBC broadcast it to one person?
Spotify can hardly be blamed for the artist having a crappy deal with his/her record label.
And the reason for why it is sooo bad is of course because it hasn't matured yet. But the only problem in the equation is the record labels.
The reason for why I didn't buy albums was because I didn't enjoy listening to albums. I enjoy listening to tracks and I don't feel like buying twenty when I only like two of them.
It doesn't help that buying an album and having it in my shelf "says something about who I am" when I really didn't want the album to begin with.
Not to mention how inconvenient a pressed CD is for someone like me.
Actually I'm calculating only what the rights holder gets and doing the comparison between sales and streaming income.
Its completely irrelevant to the discussion what the artist/label deal is, only what the spotify|iTunes/payee deal is.
> Spotify can hardly be blamed for the artist having a crappy deal with his/her record label.
No, the stated payout rates are what the rights holder receives. That is the publishing company or sound recording copyright holder which is usually but not always the label. In many cases indie labels are owned by the artists. I get 100%
I'm not fond of this demonization of the labels as though they were the whole problem. The music industry has gone through dramatic changes and its not really useful to try to identify a bad guy. The musicians certainly are getting fucked though, that's always how it goes.
> Also I don't get your BBC-comparison, did BBC broadcast it to one person?
But that's the thing: a Spotify streaming play requires a large number of people to actively select to listen to your track. Radio plays to a huge number of people who are mostly passive (after they've selected to listen to the radio or not). Its vastly more difficult to achieve that kind of focused high traffic streaming income in the super fragmented world of streaming.
So comparing the payout rate to broadcast royalty rates IS completely irrelevant, yet that is what everybody is doing and that's basically how the payouts are being calculated.
And yet its sales that they are replacing. For the user its play on demand. It looks like iTunes. I pulled up tracks the other night on Spotify while making dinner for my girlfriend. Its just like owning the tracks.
So for the rights holder its an awful disruption.
> And the reason for why it is sooo bad is of course because it hasn't matured yet. But the only problem in the equation is the record labels.
Because Spotify was designed as an alternative to P2P/piracy. So the price point is in comparison to that, not in competition with sales. Its accidental that its cannibalizing sales, and in fact Spotify would love to be resulting in large amounts of sales (with their buy buttons). The problem is that the music is available on demand, so the incentive to buy is very low.
> The reason for why I didn't buy albums was because I didn't enjoy listening to albums. I enjoy listening to tracks and I don't feel like buying twenty when I only like two of them.
iTunes disrupted that back in 2001, so I would say that's pretty irrelevant to the Spotify vs. digital sales discussion.
Its not like a moving company that has a businesses with costs and then they compete with other identical businesses and test the customers and have a price discovery phase and then arrive at a price.
Spotify is a solution to the environment of widespread P2P/piracy.
The people were offered a price: $0 on Napster/Limewire/Oink. They accepted the offer. Great, the market has spoken; that's what the content is deemed to be worth. Its worthless. Its worthless because it is possible to obtain it without paying for it.
In any industry whatsoever if you offer a price of $0 then people will take it. Try offering beer for $0 — maybe you can support it with advertising ;)
The price point that Spotify is offering is in competion with piracy. That's why it is so low.
> If you don't like it, take your songs off spotify.
Why would I do that ? I love Spotify. There is no income in it for me as a rights holder, but there's no benefit for me to remove it. [I am far more likely to remove my music from iTunes actually. its just not a good look, there are better digital stores]
I think they have great intentions and want desperately to make this new economy work. They cannot just raise the price (they would love to) because they could kill the whole thing and sales would drop off. They are losing money in order to keep this thing going.
What I said was that its use for the user is to replace sales; but the payment and pricing (in and out) are like that of broadcast.
Its a very unfortunate disruption.
> Spotify isn't cheating you out of anything.
sigh. people are so binary when discussing this stuff. Its more complicated. It would be nice if people weren't so hostile and always trying to identify a bad guy to blame everything on.
Mind you, as a consumer I'm not complaining about low prices. It's awesome. But I'm also mindful of the economics --
I pay $50+ / month for my cable TV subscription. I don't like it. I'm not "happy" about it. But you know what -- I haven't cancelled it yet either, so something's keeping me there -likely the 'flip channels' factor, which is nice and brainless, and the availability of live news - MSNBC, CNN, local news, etc. Sometimes you just want to sit down and turn the TV on, and I'm willing to pay for that.
But the point remains that there's a big gap between $9.99 Spotify / $8 Netflix and $50-$100 cable, both of which many people are willing to pay for.
I'm more happy with buying albums I love and archiving them. So, I'm looking forward to the new iTunes, I hope it combines the old way with the new way in new ways.
But Spotify has to work more on discoverability of new artists and music. I'm not convinced by there app.
The library is really good, and the app itself is quite nice. It has this amazing thing called QUEUING (iTunes - I'm looking at you) and the social aspect of it is actually pretty useful. You can search playlists for anything from "Jazz for dummies" to "Breaking Bad soundtrack" and sure enough, somebody will have gone through the trouble of assembling a really high quality mix from the Spotify library.
So no, Spotify obviously isn't going to give you the same feeling as physically collecting music releases. It doesn't try to.
I will add that I do have a few negatives surrounding Spotify. I think it is a pretty poor music discoverability tool (outside of searching for social playlists to subscribe to). The radio is very poor, and some of the tagging/cataloguing of their vast collection leaves a bit to be desired.
But for me? I compare it to the $30/year I pay Pandora. I have a Pandora app in my car, on my TV, on every phone and computer, etc. It's ubiquitous and the fact that I can't pick a specific song is meaningless to me. In fact, I like it much better. I can work and live my life and not have to spend a single second worrying about playlists and song selection.
Lately I've really liked the rebooted Songza.com -- it's curated playlists vs Pandora's algorithm-driven model. The playlists are great and the activity-centric UI is pretty awesome too.
I think of it like this: for 10 bucks a month, every month I have Spotify, I could have owned an album on one of my playlists. After 2-3 years, I basically own nothing, when I could have owned most of the music I listen to. Most of the people I've introduced Spotify to are on a similar wavelength.
On top of that, the idea that Spotify may not be around in a year or two add's even more hesitance on my part to keep the $10 subscription.
I really hope it all works out for them (and us).
Rhetorically, it sounds like an obvious "yes", but if I personally think back to all the stuff I got as a teenager and hardly ever listen to anymore, not owning it might be entirely fine.
Ownership is less of a burden when there's no physical media, of course, and there's still some old music everyone keeps coming back to. But a lot of music is ephemeral, and only having access to it when it's current might not be so bad.
If you're only listening to 24-36 albums in 2-3 years than yeah you could have and maybe you should have. If you listen to that much in a month or sometimes a week than Spotify is by far the best thing ever.
I think $10 is the sweet spot. I used to be a fairly big music pirate (what.cd elite, if that means anything to anybody), and RDIO at $10/month has completely replaced my whole illegal music collection. If it were more than that, i'd probably start thinking about whether it was worth the money or not, but at $10/mo i don't even think about it.
Edit: I am mistaken; they allow users wihtout facebook accounts to sign up now (see elsewhere in the thread)
“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.
There is a lot demand for their product. It's not like people are switching to something else. People still want Lady Gaga and the Beatles.
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.
SEE YOU AT SCHOOL TOMORROW SPOTIFY
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.
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.
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.
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.
So while Spotify could go direct to some artists, none of the big ones can make that kind of deal.
Makes me wonder if there isn't an antitrust case here somewhere. Feels highly predatory by music license holders.
That doesn't mean that the content licenses aren't predatory, just that I don't see the relevance of that argument.
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.
I suspect Spotify knows this, and is betting on getting too big to fail before the record companies push them under.
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.
Most of the overhead would seem to be royalties, so reducing them by 25% may not be an option. The revenue is also determined by ad market rates, which can be cyclical, and is out of their control.
Worry not, because, in my opinion; Spotify is here to stay and is solving a problem that is certainly worth solving.
Its the combination of several factors:
A previous commenter stated that Spotify is not only competing for iTunes' money, but with piracy too. I agree; they're converting a client that was worth $0.00 over their lifetime (as well as those who 'pirated and then purchased', etc) into paying the artist per listen. That's absolutely radical.
The $20m increase in staffing is a direct product of this vision. The new staff is hard at work at making Spotify available on as many platforms, as beautifully as possible, with as many artists and in as many countries as possible.
The price, whether it be $9.99 or $12.45, won't be the problem, pricing can be fixed later with more data.
The only danger Spotify faces is the resistance it is facing in 'the rest of the world', where there may be entrenched local media companies with distribution rights, or local music/label representatives may be weary of the payment model. That would limit their scale, and Spotify needs scale to work.
... thank god for the $100m Sean Parker found for Spotify, and for the X billions more he can sway for it as well. I'd bet on Spotify today more than ever, it may be a long bet, but we haven't seen such a successful contender in this category since iTunes.
Spotify is an A+ example of what every other startup with 1/100th of the business plan or cojones is trying to do: Spotify is aiming to become a billion dollar company, and I congratulate them for that.
The music industry is worth spending tens, hundreds, even thousands of millions to fix/disrupt/change/make better.
Yes. And this sense of entitlement is getting on my nerves.
The cost of music distribution has gone from infinite to ZERO in just about 130 years. This is a great achievement for us as a species and we should adapt accordingly instead of bemourning expired business models.
The music industry was constructed around the bottleneck of physical media distribution. This bottleneck does not exist anymore.
Personally I think the amount artists get paid by streaming services is wrong. $0.003 and even less per stream is what I've seen but we also must remember that artists signed to the major labels get paid a much higher cut due to deals they make with the streaming services. I think the services would work best if artists/labels could opt-in and the price per stream was fixed for all artists ($0.02 per play seems fair to me).
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.
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.
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/
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.
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?
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
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.
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.
http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2964
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.