Roger Fingas
Spotify, the world's biggest on-demand music service, could finally turn a profit in 2017, one of its board members said on Thursday.
"Up until now, I think it's been growth, growth growth," Par-Jorgen Parson told Reuters. Parson is a general partner with venture capital firm Northzone, and one of Spotify's first investors. Asked whether Spotify could turn a profit next year, he said it was "absolutely" the case.
Spotify now has a presence in 60 markets, and over 40 million paid subscribers, plus an even larger contingent of people listening on its free ad-based tier. To date though it has posted a loss in every quarter, pumping money into expansion and/or the music licenses it needs to offer content. The company doesn't generate much money from ad-based listeners, and regularly encourages them to upgrade.
While Apple Music has far fewer subscribers — somewhere north of 17 million in total — it's thought to be doing well financially. Even if it weren't, Apple isn't dependent on its success, and is likely using the service as a way of keeping people attached to its hardware and software platforms.
Apple is rumored to be considering a temporary 20 percent price cut on its individual and family subscriptions. If so that could dramatically undercut Spotify, which doesn't have any alternate sources of revenue to fall back on.
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16 Comments
expansion of what a few more servers, they can not turn a profit on 40 million users, Also licensing usually depends on number of users the more they sign up the more they pay so I am not sure if they total cost per users is going to drop in 2017. I think the VC is hoping they turn a profit otherwise he is not going to make money. He put a lot in and still has not seen a dime. They better hope users do not go elsewhere and the cost to change is very low in this business.
$1
...time to go public.
I don't know what Spotify can do at this point to turn a profit. They launched in 2008. 8+ years should have been more than enough time to optimize their mature markets. There's now way their VC's would have allowed a growth-only with negative profit business model for this long.
They can't squeeze out more revenue from their paid subscribers because those customers would flee to the competition. Increasing ad revenue means either forcing extra ad time on the free tier (which would cause many to flee) or get higher payouts from the paid advertisers (good luck with that). There's no way that the content license holders will lower their royalty fees -- most of the industry complains it's too low already. Apparently growing the customer base isn't working for them either.
If they have 40 million users and still cannot turn a profit then there's some massive inefficiencies there. Somehow, Apple can have less than half the users yet still turn a profit? I'm betting if Apple cuts its prices on Apple Music it will STILL turn a profit. Someone at Spotify needs to be fired, if not then someone seriously needs to take a look at their financials.
While Spotify might be a nice service, if it can't turn this around it will lose the battle in the end. VC's will want a return on their investment eventually. They aren't gonna keep pouring money into something that isn't going to make money for them, or makes very little.
Time to start an exit strategy....