Spotify is close to having 100 million users, with 30 million of them being subscribers who pay for the ad-free service. By comparison, Apple Music, which launched last year, has 13 million paying subscribers. Still, Spotify is searching for a way to boost revenues.
For more on this, The Frame interviewed Matthias Verbegt, staff writer for the Wall Street Journal, who covers Spotify from Stockholm, where the company is based. He gave The Frame an overview of how the streaming platform is doing financially.
Given its large advantage, is Spotify profitable, or are they following the Amazon model of spending a lot on content acquisition and marketing and growth, and not focused on profits?
Almost 80 percent of all the revenue of more than $2 billion that Spotify earns goes back to the record label and the artists. The negotiating margin for Spotify is pretty thin on this. Yesterday they released the results for 2015 and they had a loss of $193 million, which is seven percent more than the year before. At the same time, for record labels, revenue for streaming is becoming increasingly more important as the sales of physical products like CDs are still going down. So, Spotify, the world's biggest streaming service, and the record labels both need each other.
Spotify said in its financial filings that it would continue making investments in developing new products. Any idea what those products could be?
They're investing a lot to do things with the masses of data that they aggregate from all their users. Spotify has been around since 2006 so from its users, it has huge amounts of data of what kind of music they have been listening to. They really try to use that information to provide people with even more tailored services and more suggested music. Also to lure artists to their platform because they can provide artists with huge amounts of data [about] their own fanbase.
Given how much money Spotify pays to record labels in royalties, is there any way that Spotify could start its own record label or get artists exclusively on Spotify?
Spotify's competitors like Tidal and Apple Music have been trying to lure artists to their platform with exclusive agreements. This is something that Spotify has been a little bit restrained in. They haven't done it to that extent because they are the market leader. Now, since Tidal and Apple are being very aggressive, it may well be that Spotify will begin to look for exclusive agreements with artists as well.
If I'm a recording artist and I'm trying to choose between Spotify, Tidal, Apple Music or Pandora, is there something that any of them can offer me that will make me want to go there? What are those negotiations over?
Tidal has said that it pays the most in royalties to artists, so that's why some artists are going for exclusive deals with them. At the same time, Spotify can offer artists great data and value to see what kind of users they have, what kind of people listen to their music, where they are listening, and where to organize the next concert, where to invest in marketing. That's the advantage of Spotify. Apple has the huge iTunes database and knowledge. They all have their advantages.
What is Spotify's plan to continue to grow?
Spotify is currently available in some 60 countries, which is less than Apple Music. It will definitely be trying to expand to new countries and new markets. At the same time, they're also trying to get more people to subscribe to their paid service, as percent of their revenue comes from paid subscribers. Yesterday they launched a new family plan by which members of one family can listen to ad-free music for $14.99 per month. They're really trying to get people to pay more as they realize that advertisements doesn't bring in that much money.