The music streaming service Spotify is currently in an awkward position that seemingly leads to questions about the company’s future. Despite being the icon for music streaming, reaching 50 million paid subscribers earlier this month, the service is at odds in every corner of the music industry.
To start, Spotify’s model does not yield any profit, even in its recent successes and steady growth. A staggering amount of the company’s revenue (which was over $2 billion in 2015) goes to paying for the music, such as record labels or copyright agreements. In fact, Spotify’s losses have increased over time.
It is also worth mentioning the $1 billion debt to investors the company currently finds itself in, with anticipation for the company’s IPO, which has been delayed for 2018 in an effort to yield higher valuation. The prospect includes a 20% discount on the share prices offered by Spotify, alongside a 2.5% increase every six months after the first year if there is no IPO yet, with a final 5% interest rate on the debt. While this move is certainly a beneficial one, it shows the frailty of Spotify in its financial situation, especially if the IPO is unsuccessful and the company cannot remove its debt.
Furthermore, Spotify has found difficulties with the music itself, also adding to the its financial setbacks. A year ago, the company had a settlement with the National Music Publishers Association (NMPA) regarding unpaid royalties which led to an ambiguous amount of payments of around $30 million. The settlement was then followed by a string of lawsuits which focused on the subject of unpaid royalties, seeking almost $400 million in total. To some extent, these fights against Spotify not only provided financial issues, but also problems with the content released on the platform because they focused on unpaid royalties rather than actually stopping the company from streaming unlicensed tracks. This correlates with the consistent discontent present among artists who feel Spotify, among other streaming services does not provide adequate payments, especially in comparison to the payout which is directed to record labels.
Regardless of Spotify’s situation, it certainly remains as the forefront in the digital music industry. That being said, Spotify reflects the current state of the music industry. The problems being faced by Spotify are prevalent everywhere among streaming services, which makes it crucial to be attentive to what’s to come of this company’s future.
As described in an article by billboard, “Spotify’s losses come disproportionately from its free tier, but [Daniel] Ek put customer acquisition above all else, which let Spotify grow its subscriber base fast – which means that the entire music business now has an interest in its success. If it’s not already too big to fail, it’s headed in that direction quickly.”