Spotify: Up the Down Escalator

It seems that we were too Swift in our assumption that we may have a Spotify free version of The Gen this week, as the streaming service announced that revenues rose by 74% in 2013. Despite revenues of almost £593m, Spotify still failed to turn an overall profit as its operating losses also climbed by over 16%.

The FT (via Music Week) reported that the streaming giant paid out €605m in royalty and distribution costs last year, accounting for over 80% of its revenues. Unsurprisingly, sales and marketing costs also increased to €111m with R & D rising to €73m.

The Guardian also pointed out that last year, over 90% of Spotify’s revenues were generated from its paying user base of just 22.2%.

Whilst Spotify subscriptions rose by 81.8% €678.7m year on year in 2013, advertising revenue was just €68m- a clear indication that the future of the platform lies in increasing long-term subscriptions as opposed to growing as an advertising platform.

In a letter to shareholders, the company stated: “We have already proven that we’ve created real value for our users, and we know that the more time people spend with our product, the more likely they are to become paying subscribers. We believe that we will generate substantial revenues as our reach expands, and that, at scale, our margins will improve”.

On the subject of streaming, The Gen recommends that you check out Pitchfork’s ‘Three Points missing from the streaming media debate’ here.