Something that never seems to stop evolving is music and the way we hear it. Look one hundred years back and you’ll see that a lot has changed. Depending on who you ask, some people feel that it’s changed for the better and some for the worse. Regardless of people’s taste in music, we can all be happy with the fact that there are so many ways to be able to listen to your favorite songs and artists. Thanks to Spotify, Pandora, Apple Music, Deezer, etc. we have access to a humongous music database. Thanks to these music streaming services there is no need to make sure you have enough space to be able to hold all your songs. However, let’s focus on Spotify, one of the fastest growing music business to date.
How does Spotify work?
Spotify was founded more than ten years ago, the application was officially launched in 2008 and is now making more than two billion dollars of revenue every year. Spotify works under a very known business model called freemium. Freemium is a model where the service or application you are using is free, however, you can get additional features if you pay a subscription fee. Spotify does this by offering their paying customers an advertisement free service and increases songs bitrates to 320 kbit/s. In other words, they offer better song quality.
They’ve managed to get 60 million people to pay the subscription fee. An impressive number which becomes insignificant when you find out that there is a total of 140 million Spotify users. This means that not even half of their users are actually paying for their services. On top of this Spotify pays millions of dollars in royalties to the different artists that have their content on their platform. The money per stream is the same for all artists on the platform. It doesn’t matter if you are a small or big artist, the rate will stay the same. Only the contract the artist has with their record company will change how much money each streamed song will go to their pockets.
If we add all of this together we will see that Spotify is losing a lot of money. The core of their business, of their idea, is actually ruining them. We listeners are listening too much and therefore costing them too much. This isn’t only a problem with Spotify but also with other freemium music streaming applications.
What about making Spotify like Apple Music?
This will not happen. Why? It completely negates Spotify’s initial idea of being able to offer music to people for free. To give small artists the platform to reach people from all over the world. Streaming is the future of music and if they start charging, people will just go to the next free streaming company. The difference between Spotify and Apple Music is that Apple wants to make money. Apple doesn’t believe in free music which I respect but at the same time, this makes their services very exclusive. This is also why Apple Music still hasn’t surpassed Spotify on the amount of users. However, how can we know if Apple Music will still be profitable in the coming years? We’ve even seen Tidal, another pay only music streaming company, post huge losses recently. The way people see it, music streaming companies will always be doomed from the start.
Spotify’s next plan is to expand into other content. They are making deals with different artists to release exclusive albums, music documentaries, videos, etc. Furthermore, they have acquired different companies that help them track their users’ playtime on their platform to, therefore, create personalized content for them. Showing you concerts near your area and redirecting you to a ticket seller, artist merchandise and music related videos are other tactics they are using. However, the biggest move would be going public at the New York Stock Exchange. It’s been rumored for quite some time that this will happen. It’s a risky move that could either save them or completely ruin them. Only time will tell if this plan will be enough to take Spotify out of the profitless world they are living in.