PrivCo: Spotify expected to report major losses
Popular online music service Spotify's financial records show that the bigger the company gets, the bigger its losses, according to PrivCo, a U.S. based firm of financial analysts. Sam Hamadeh, the founder and CEO of PrivCo, said in a statement: "Spotify's 2011 results indicate that drastic changes must be be made quickly to its business model in order to generate growth."
"As currently designed, Spotify's business model is unsustainable. Spotify's heaviest users will have to pay (more), for example, for a "Spotify Platinum" level for $25/month with more song plays allowed. No matter how we slice the math, it is patently clear that something must change soon on Spotify's business model if the company is to survive," Mr. Hamadeh continued.
PrivCo has exclusively obtained Spotify's just-closed full year financial reports. PrivCo analysts believe that, despite Spotify's steady revenue growth, its overall financial results are alarming. "While Spotify's revenues grew 151% in 2011 to $244 Million (€187.8M), over 2010, Spotify was unable to generate any material improvements to its cost of sales margin," according to PrivCo.
A great challenge for Spotify will be how they can continue to afford offering their customers music content for free or at the current low rates. The company's financial sheets show that they are spending most of their money on payments of music royalties and licensing fees. Of course that is no surprise: as they do not produce their own content, Spotify has to buy. However, basically they have been selling products below their purchase price and, in general, that is not a sustainable business case. Furthermore, PrivCo reports that in 2011, Spotify's salary costs for their 311 employees grew 173% year over year, outpacing revenue growth.
Hopefully, Spotify is able to turn the tables next year. Surely they have plenty of opportunity to do so: a huge fan base and many customers worldwide. Perhaps the Swedes will now be able to capitalize on their size.
Read more about the development of online music distribution business on Future of Copyright:
Comments(2)
Koen verbrugge
Bad post
1. The nummers have been published (not exclusive)
2. No analysis of stakeholders and assets
3. Mostly à shock title above à shallow report to trigger free press.
Could uwe some added value instead of copy paste
Peter
thanks for your reply. we appreciate your feedback. while taking you reply into account, it nevertheless remains an interesting discussion whether offering free or low-price content will be a sustainable business model for online distribution of creative content.
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