Spotify is a music streaming service that allows users to play and share songs and customized playlists. Spotify was founded in 2006 by Daniël Ek and Martin Lorentzon in Stockholm.
Spotify’s revenue comes mostly from paying users but also from advertising. Users must pay €5 or €10 euro’s per month for unlimited acces to ad free music. Users are also allowed to listen a certain amount of music for free but in the free model, Spotify plays advertisements between the songs.
Despite their phenomenal growth, Spotify announced a big loss. The announcement of their loss revived the debate about Spotify’s business model. At first glance Spotify should be doing great, they have millions of paying users and after the intergration with Facebook the revenues increased even more. The problem of Spotify is that they have to pay licencing fees to the music industry. These ‘cost of sales’ are increasing simultaniously with the increasing userbase. At the end of the day Spotify should rise prices or improve their businessmodel in order to make a sustainable profit.
Will Spotify go bankrupt? I don’t think so. Spotify is the answer for the losses that recordlabels suffer because people simply don’t buy records anymore. The biggest recordlabels are trying to find a solution for their losses. One of the solutions is selling songs on the internet.
Just a few days ago the French music streaming start-up Deezer announced a €100 million investment lead by Time Warner. This deal shows the interest of the recordlabels in such services but it also shows the revival of an entire industry.