Spotify’s financial report for 2010 just came out, and it shows that the company’s approach of getting to massive scale before its competitors just might work.
Revenues increased more than five times, from $18 million (11.3 million pounds) to $99 million. The key statistic, though, is cost of goods — that’s what Spotify pays in licensing fees to the record labels and publishers. Those costs went from $30 million to $102 million. (Music Ally has the full report.)
In other words, in 2009 Spotify was bleeding from licensing fees — it was spending far more for content than it was getting paid. In 2010, it came much closer to breaking even on cost of gods. That’s because it’s got more listeners and — critically — more paying customers.
That’s apparent from its subscription revenues, which grew from $11 million to $71 million. Ad revenues, meanwhile, grew much more slowly — from $7 million to $28 million.
In general, subscription music services have to pay much higher rates than online radio services like Pandora, where users can’t pick their tunes (probably between 3x and 5x, although the deals vary). Those higher rates apply even to free sample songs. Advertising rates are still too low to cover those costs, so the only way for subscription services to cover their costs is to get paying customers.
Spotify’s net loss still increased from $26 million in 2009 to $42 million in 2010, but most of that cost increase was due to administrative expenses, not licensing costs.
These numbers are now 10 months old. Since then, Spotify has entered the United States with a big splash, and now has more than 2 million paying subscribers.
Here’s the basic chart from Music Ally. Numbers here are in British pounds.
Photo: via Music Ally