Spotify Is Now Worth More Than the Entire US Recording Industry…

valuation-spotify-vs-us-recorded-industry

 

Sources: Spotify valuation ($8.4 billion) calculated by Wall Street Journal, based on an upcoming, $400 million+ capital round led by Goldman Sachs..  US-based recording valuation for 2014 ($6.972 billion) published this month by recording trade group RIAA.

68 Responses

    • Hi, I'm The Easter Bunny...

      Spotify is worth $8b and I’m the Easter Bunny…

      Reply
      • Easter Bunny Meet Reality of Down Rounding...

        Reality is that Spotify is “down rounding” on the current investment (google that term). It means investors are losing confidence because the likelihood of it becoming financially viable is getting farther away.

        Spotify can’t turn a profit and can’t pay artists fairly… that pretty much just looks like simple math for a BAD BUSINESS MODEL THAT DOES NOT WORK.

        Welcome to REALITY.

        “INVESTOPEDIA EXPLAINS ‘Down Round’
        Down rounds cause dilution of ownership for existing investors. This often means the company’s founders stock or options are worth much less, or even nothing at all. Unfortunately, sometimes the only other option is going out of business. In this case down rounds are necessary and welcomed.

        Down rounds are commonplace when a red hot economy turns bad. A perfect example was the dot-com crash of 2000-2001.”

        Reply
        • Johnny Gagnon

          The music – internet – industry is an industry of it’s own….. it is not a realistic extension and exploitation of the music industry …. and the only thing in common is the word …. music.

          I pulled my music out when I realized it wasn’t worth my effort and time , and been trying for years , without success , to get them to completely take down all of it off , only goes to show how much respect these thieves have for artists!

          Reply
        • Brandon

          How is it a downround when they are raising at a higher valuation? if you ask me they’re smart to raise cash on favorable terms – but not take in more than is necessary – enough to defend their position against beats/apple & pandora before going to IPO in ~18 months. their #1 priority is protecting shareholders from additional dilution while still having the cash to compete as they charge towards a liquidation event. raising less at a higher valuation sounds like smart business to me.

          Reply
    • KS2 Problema

      At first I was flummoxed by this and then I took a look at radio industry revenue for 2014 in the US ($20B) and advertising business revenue for the US nearly $200B (out of a global revenue of ~$580B) and I rolled the notion around in my head that the average US consumer spends only around $9 a year (according to 2014 Nielsen figures) on music and about half of that is on live music events. (That amounts to around $3B in US consumer dollars — but the music biz income for 2014 was $15.2B, indicating much more substantial revenue from ‘indirect’ sources.)

      This seems to suggest to me that the music industry is eager to cut themselves more deeply into the revenue streams from advertising driven music being supplied to the clearly very large number of people who spend little or nothing directly on music.

      We need to look deeper than a few surface numbers that various vested interests bandy around trying to warp the discussion to their ends.

      Reply
    • $potify$tealsUrMoney

      Spotify are crooks. I never signed up for their service and for the past 6 months my credit card has been charged by Spotify.
      No surprise, the music business is nothing but a bunch of crooks anyway.

      Reply
      • DnosHubz

        If you didn’t sign up for their service, how in the hell are they taking money from your credit card? Obviously you must have given them credit card information – and why would you do that if you didn’t sign up? I call troll.

        Reply
        • Keegan

          I believe him. The same thing happened to me. They charged $9.99 to a credit card I use only for gasoline purchases. Idk how it happened either but I called and had it removed.

          Reply
  1. G Rene

    Why? Are you saying that the valuation of the US Industry is only the annual revenue?

    Reply
    • David

      Very possible. The valuation of a company is based on expected future profits. In the case of an established business, these are estimated on the basis of current profits adjusted upwards or downwards according to the market’s judgement of future trends, and discounted for time and risk (which means that possible earnings far in the future have little present value). Current earnings (profits) are usually only a small proportion (maybe 10%) of current revenue. So expected future earnings over, say, a 10 year period might well be of the same order of magnitude as current revenue.
      In the case of a speculative start-up venture like Spotify, where there are no current profits, the valuation is little more than guesswork. A valuation of $8 billion implies that the market is expecting future profits of the order of $800 million a year over a substantial period in the future. Can’t see it myself.

      Reply
  2. Chris

    How can they be worth more than the music industry when they don’t own any music?

    Reply
    • Anonymous

      And that’s really the point, isn’t it…

      Here’s what Spotify is worth if all its artists go Taylor Swift tomorrow:

      $0.

      Reply
      • Willis

        Not true. That’s an emotion-filled response. Reality is that they have data and technology. This is the reason that the music industry continues to fall behind. When was the last time you mailed in a bounce-back card?

        Reply
        • Anonymous

          Spotify is d.e.a.d. without content providers.

          Goes for YouTube, too.

          Reply
          • Art

            You probably said that about the newspaper industry too……hasn’t the Internet taught us that the ability to capture eyeballs (or ears in this case) is more important than the content creators?

          • Rickshaw

            The problem with that statement is…there will never not be content creators for these outlets. Never.

          • Rickshaw

            What does that even mean? Is it just a comment so you have the last word? Reality is that there will always be content. That’s not arguable. With the number of views and direct/ancillary revenue from these sites, people will license. Consider the indie content, also, which is a majority of the content on those sites right now. It’s not going away.

          • Markeux

            +1
            As an indie artist and co-owner of an independent record label we rely on this sort of service almost exclusively because people simply aren’t “buying” music any more. We want our music to be heard regardless of profit. Piracy is not even a concern any more. Consumers used to steal it because there hasn’t ever really had a true value(I’m speaking exclusively of digital music). It’s intangible. It doesn’t cost anything to distribute. I believe the only reason it was even given a price in the first place was not to undercut the cd industry.

            Obviously this won’t be true in every case every time. But for the most part in my experience this is the way the industry is leaning. Artists will make their money by doing shows and selling merch. Our label revenues are made up by about 96% tshirt sales. Pretty sad for a company thats in the business of selling music.

            We all have to adapt

          • Tek Knowledge

            I have to second this comment. I am also an indie musician and indie label owner. I would also like to mention that affiliate marketing is a big thing as well. Merch, shows, and affiliate/ad revenue is the future. The big labels are all just pissed people are cutting out the middle man because it makes them pointless. The sooner were done with cd’s the better. I make music, and I’m also an advocate for music piracy, go figure. The truth is that this business has been filled with liars, swindlers, con artists, and thieves and for years have exploited artists and their fans. Every opportunity I get to undercut and prove the old business model is obsolete I take it. It really shouldn’t be up to a few greedy assholes to decide what will be popular, it should be up to the people, and the artist should be making most of the money being paid by the people. That’s what’s fair and right. All this hoopla about spotify dying and streaming services suck blah blah blah is a bunch of bull, and anything you hear about that is lies, like the whole thing with Pandora and the song “Happy” by Pharrell. The article of course doesn’t mention labels make over 40% of their revenues off streaming, so if Pharrell didn’t get all his money from Pandora it’s cause sony is a bunch of thieves and swindlers and didn’t pay that artist. Not because Pandora didn’t pay out. to all those nay sayers I say stop crying and adapt or move out of the way cause i’ll run your butt over; I’m movin at full speed homey. There’s plenty of money to be made out there without cd’s.

          • c double

            I agree with the other guy, they have brand recognition, it wouldn’t be 0, they could sell their brand if they haven’t already, not sure if I’d call those kids musicians or comedians haha

      • Art

        and what….the record stores are going to make a comeback? The only way artist might be able to quit Spotify is because Apple is coming to the streaming market.

        Reply
        • Anonymous

          Um, it’s not exactly a problem at all to leave Spotify. Lots of artists do…

          Reply
      • Anonymous

        I keep hearing day in day out that Spotify is gonna die, artists are gonna pull out. It’s been 9 years of hearing this.

        Reply
        • Edward Jennings

          The death of Spotify or some next music platform, like Apple Music (hehehe) being the Spotify “Killer” are greatly exaggerated or wishful thinking notions. The reality is that Spotify is an open architecture music platform that continues to grow and thrive. Look at the investors jockeying for position to invest in Spotify.

          “What doesn’t kill you makes you stronger”

          Reply
  3. Tcooke

    Ok i do have a finance degree just saying because this could be good news. The markets, theoritcally accurately price securities. If this not a bubble, then perhaps there is some insider knowledge that is getting spread amoung institutional investors, or something thats public. Just sayn it could be indicative of an prodigious recovery.

    Reply
  4. Musicservices4less

    Paul, Paul. You know that number is not a valuation from the RIAA, it’s just revenues for one year. You really should not do that to your readers. Just sayin’

    Reply
    • Vail, CO

      It’s quite common to refer to the value of an industry by its annual revenues (and not profits). If you said:

      “The U.S. Recording Industry is a $6.9 billion industry”

      then most would understand that’s an annual figure.
      Usually the statement comes like this:

      “The U.S. Recording Industry is still a $6.9 billion industry, but profits are falling fast thanks to a number of different headwinds. “

      Reply
      • Leigh

        It may be common to do that, but that’s not what is happening here. What’s happening here is a direct, numerical comparison — in graph form — between two numbers that have no business being compared.

        The annual revenues of an industry — even if casually referred to as that industry’s “size” or “value” — are not even CLOSE to the same thing as the calculated valuation of a company based on a capital investment round. Placing the two side-by-side like this is either flagrantly and intentionally dishonest or a very embarrassing and credibility-damaging mistake.

        (And that’s not even getting into the intentionally misleading scale chosen for the graph, which makes a 17% difference look like 60%)

        Reply
  5. Edward Jennings

    Spotify is Music Big Data. RIAA and the record label conglomerates, damned if you do, damned if you don’t solution. 80 Million global subscribers presently. How quick do they become a 100 million subscriber company? Stay iTuned.

    Reply
    • small labe1

      you left something out of your statement.. “80 million subscribers….” 80% of which don’t pay a single dime…

      Hey, streaming could work if they actually restricted the free teir down to a trial experience then started shutting off features until either the ‘customer’ got cut off or bought a subscription… but that would make business sense and not just a Goldman Sachs IPO financial ‘pump-n-dump’ scam…(of which Spotify is currently)..

      Reply
      • Edward Jennings

        To be factual the number I saw twice somewhere said 80 million subscribers, 20 million paid, so 25% are paid subscriptions. 75% are freemium. Even with 75% free subscribers, Spotify AB is valued at 8.4 Billion.

        Hypebot featured a reference article and link to the Sky News source that describes the intense activity for the next $400 million funding round. Lots of investment interest in an 8.4 billion cloud music and services “open” platform.

        It seems the next round of investor funding is hinging on the renegotiated contract with Universal. SONY has already “outsourced” SONY Unlimited to Spotify and is the smallest of the three record conglomerates that have a combined equity stake of 18% in Spotify AB.

        http://news.sky.com/story/1468539/spotify-to-sell-stakes-to-global-fund-giants

        Cyndi Lauper was right, “Money changes everything”

        Reply
  6. Anon

    Valuations and annual revenue are completely different. The fact that these numbers are put side by side shows a complete lack of understanding of business, not the music business, any business.

    Reply
  7. Edward Jennings

    This is an apples and oranges comparison. The more direct valuation comparison with the right data would be Spotify US versus US Music Industry (RIAA), not Spotify AB “Global” versus RIAA US data. So glad I took probability and statistics in college. It taught me how people fabricate bar charts.

    Perhaps the chart should be redone to reflect the World Music Industry number vs. Spotify AB the “Swedish” company with US offices….

    Know your data and use it accurately.

    Reply
  8. Anonymous

    does this website ever fact check? or are they only concerned with salacious music industry TMZ-esque click bait headlines?

    Reply
    • Edward Jennings

      Hypebot.com is a better designed and more informative music industry news Web site.

      Reply
  9. EHB

    I can comprehend how that valuation statement can ring true inside the Wall Street federal business of equity. Someone said ‘ Spotify’ don’t own music when in fact the , silent partners , aside from money managers like , Goldman Sachs , do in fact own percentage–equity investments inside the massive streaming machine platform. Remember the core business of music is licensing and inevitably you can not be a relevant silent percentage partner unless you do own music : So it is theoretically possible for the major and independent cartels have indeed invested inside a digital music entity that has in fact morphed into a consolidated profit machine as opposed to the the highly fragmented industry of music as it eXist today. . .;

    Reply
  10. Inaccurate Headline

    Correct: spotify is “valued at” more than the Recorded Music Industry in the US has actually brought in revenue-wise.

    Reply
  11. There is something...

    Valuation VS earnings = stupid journalism at its finest…

    Vivendi rejected a 8.5 billions offer for Universal a couple years ago so Universal alone worths more than Spotify, at least…

    Reply
    • Anonymous

      Very true

      But UMG actually owns content at that valuation. Spotify owns zero.

      Something to think about….

      Reply
    • Rickshaw

      The difference between what you think and reality is more commonly known as the Grand Canyon.

      Reply
  12. BeZ

    Once again DMN shines as a beacon of hyperbole and click bait headlines. I’m surprised that someone like Paul with an economics degree from Stanford doesn’t care to make his posts factually correct.

    You are comparing apples and oranges…this is finance 101. You can’t compare revenue with a company’s valuation. If you wanted to make this more factually correct you’d have to calculate the value of the music industry in perpetuity. To make this super simple let’s assume that the industry, which produced $6.72B in revenue this past year, will grow at 1% YoY in perpetutity and we’ll assume a WACC (discount rate) of 10%. Using a constant perpetuity formula, where the present value of all future cash flows = today’s cash flow / (discount rate – growth rate) – e.g., 6.72/(.1-.01), you’d arrive at a valuation for the music industry in the U.S. of $75B. Additionally, since Spotify is a global and not just U.S. company, you need to value the music industry globally. If we did this for the total global industry, $15B according to IFPI, using the same growth and discount rate assumptions, you’d see that the global music industry is valued at $167B.

    So to make your headline factually correct, the headline should read “Spotify Is Now worth 5% of the global music industry…”

    Reply
  13. Chris H

    This is funny, because it’s driven by the Wall St. side. Pump n Dump sooner than later.

    The rules of the game are about to change entirely with the issues being contemplated by the courts, which are very likely to go in the favor of content creators. Then suddenly, the game changes as all sorts of people pull out their catalogs and re negotiate. When the costs of goods suddenly goes way up, will that valuation hold?

    Unlikely…

    Reply
  14. FarePlay

    Let’s just get down to it. Spotify isn’t going to shut their doors.

    Interactive music streaming is a zero sum game with a dedicated exit strategy based on finding the greater fool to buy into an IPO. But, the biggest loser is YOU the artist.

    Interactive music streaming should not exist. It can’t pay market value for product and it can’t make money either.

    It is up to the musicians to decide if they want to do business with Spotify, etc. Interactive music streaming companies are not entitled to compulsory licenses, hence the windowing we see with new releases and other artists who simply choose to not have their music available there. If you care about having a future, making money as a musician or songwriter, you need to take your songs off these services.

    Apple Music, if they’re smart, may give you better options to monetize your work, more likely through iTunes than streaming revenue. There’s not enough money in streaming to support a very large pool of creators, at least not with the present services.

    Signed artists can tell their labels that they do not want their music available there.

    As the courts are finding, many artist contracts do not have digital distribution clauses and the artists are beginning to challenge the major labels in the courts and wining. You do have power and the labels are vulnerable on numerous levels including conflict of interest.

    Reply
  15. Cdsnuts

    If they are worth that much why can’t they figure out how to pay the artists.

    Reply
  16. dukemestir

    Nothing personal against spotify but i guess there should be a fair way to compensate creators of music and artist. 0. 001 per Song add to nothing at the end of day.

    Reply
  17. fractional returns

    If they were righteous people they would give their billions back to the artists

    Reply
  18. Robbit

    There all frauds and yuppies who did this to the music industry
    I know for sure some of these commits are coming from the corporate Slime.

    Reply
  19. John

    Death and failure to all streaming sites that don’t pay musicians their due. Because a musician once put down a pleasing succession of notes on media, an industry became possible. Regardless of arguments and incessant greed, ALL of us must stick together and promote fair and proper business models on behalf of the artists who came first and made this industry possible.

    Reply

Leave a Reply

Your email address will not be published.

Verify Your Humanity * Time limit is exhausted. Please reload CAPTCHA.