But Spotify is the bad guy who doesn't pay labels and artists enough?

LOL. Some of the regular commentators on here were due for a reality check.

No kidding. It's impossible to make both profitable and forward-looking service and that's something the rights-holders are going to have to come to terms with before things really get any better. 

Irregardless of this particular financial assessment, describing spotify as a forward looking service is a bit of a stretch IMO. 

So what if spotify fails? Another forward looking service will come to take it's place. Maybe the rights holders won't ask for so much upfront next time, maybe they will, nothing personal. It's just business.

I don't know how the upfront deal spotify made with the major labels was structured. Does anyone here know the specific details of the agreement? I am sure those that do know will be consulting with the companies that are lined up right now waiting to take spotify's place.

Either way people who pay for music in any form will still pay. Those that want music for free will still get it for free.

"Irregardless"

the word you're looking for is 'regardless'

lingua anglicus non mortua est

Fac me cocleario vomere

Do you really think anybody would try to take Spotify's place?

Why would anybody copy a total failure?

When Spotify dies, the entire concept of legal streaming dies.

And a lot of new laws and initiatives all over the world will deal with illegal streaming.

So we have to stop living in the past. The free ride is over. In the future, we have to pay for music.

Easy there. I didn'y say copy spotify. I said take it's place.

Do you really think if spotify fails that will be not only the end of all streaming services but the end of streaming as a business concept?

You really need to step back and take a look at the big picture.

Here's the big picture:

Mainstream piracy is going away. New laws and initiatives pop up all the time: Look at Japan, UK, France. And look at the US:

http://torrentfreak.com/att-starts-six-strikes-anti-piracy-plan-next-month-will-block-websites-121012/

No sane artist will give his work away on Spotify when mainstream piracy is gone.

The race to the bottom is over.

Wake up! The free ride has always been there and is here to stay. 

You can fuck up these comments with your stupid rants, but does that help in any way? Who are you anyway? Some frustrated musician who cannot make a living out of music? You can only blame yourself for that.

Stop this shit, go away and build your own platform for the message you want to bring across.

Obviously you are not a musician or any other sort of rights holder...swearing and dumbing down threads for you own frustrations is not going to further any concrete solutions to a problem which is stiffling inovation and commerce...

I am a musician, but not the complaining kind. You know what is stiffling innovation and commerce... copyrights

There are two kinds of musicians -- the complaining kind and the hobbyists.

As for copyright: Sure it's a problem if you can't come up with original ideas, but it's not a problem for creative artists. And it's certainly not a problem for society. Without copyright, we would live in a world without new art, music or inventions.

Copyright has been around for a very long time, and it ain't going anywhere.

Don't say I didn't warn you ...

http://inaurem-a2d.blogspot.com/2012/09/what-if-your-cloud-suddenly-vanished.html

as a premium subscriber, i can tell you first hand that spotify is leaving a TON of money on the table. I pay 9.99 for something that is more convenient than downloads, and I would regularly pay upwards of $40 a month for downloads.

i wouldn't be able to stop subscribing to spotify unless it increased in price above $40. I would still subscribe at $39.99/mo, because it's such a higher value and more convenient service

Most people wouldn't be willing to pay that much. They have problems getting people to pay $5 per month.

And there in lies the problem. The race to the bottom, while competing with piracy makes all legitimate businesses unsustainable.

When paying for music is optional, legitimate businesses are saddled with unrealistic expectations - the solution therefore is to remove the illegally operating and profiting businesses from the legal market place.

True, but what is your solution? How are you gonna stop piracy? 

Suing the pirates is a good start.

Always remember: They are not fans and you have nothing to fear from them.

Suing the facilitators is a better start

Suing uploaders has been going on for several years. Didn't help. Next solution please.

Sure it helps, it's still the best solution out there and it gets better all the time as laws improve across the world.

But I agree we need a wide range of weapons.

Face it, guys:

Spotify is a total failure and it can't die soon enough.

As a listener, it is cool to be able to find a song, say from Steve Miller or any other artist out there and listen to it for free. As an artist it sucks, because it does not help to re-coup costs for the income spent creating and distributing the music. 

I've been talking for sometime about removing the middleman.  Somehow in the future, perhaps things will move toward a direct to fan, artist approach.  A portion of my music can be streamed from MySpace still, while I always share for listening the new albums at Big Fuss Music. 

I will not be putting any more music on Spotify.  I have a good portion streaming on the site now, but future releases I shall handle differently.

How will people discover new music?  Perhaps Facebook or other social networks. And other music sites where artists share a portion of material for listening.  Internet radio and terrestrial radio are still important.

I believe as a content creator, it is necessary to make  money from my work efforts and do believe in a fair exchange.

I look forward to the future now....

None of this is revelatory. Perhaps it is, or ought to be to people complaining about payments, but this doesn't speak to the longterm viability of the company.

Radio, when it maintained critical mass, was always been able to survive & even thrive on advertising. But it could never support the recorded music industry, too... it could never replace sales. And that's what Spotify is supposed to be doing. And it's not possible. That's clear. But the ad-supported use is a loss leader to subscriptions.

The subscription business is the meat of the company, because it accounts for those sales, but that is currently going towards subsidizing the free users. This isn't to say that advertising couldn't be much more successful if it were approached regionally (which would be a very expensive expansion), but it's never going to be profitable after licensing fees. That's just not in the math.

So the real issue here is converting free users to subscribers. I would love to see survey data on how people use Spotify. I suspect that people who have a pirated music collection have less trouble converting to Spotify as their primary music listening experience because they're less attached to their collection. And those people may have an aversion to paying for music, so that group would skew away from subcribers. People who purchase digital songs probably have a collection that includes songs ripped from physical purchases, & these people are attached to their collection & probably use Spotify, at best, as a tool for discovering music, or listening to music that isn't necessarily worth paying for... something they're not going to listen to repeatedly. But when they want to listen to their favorite artist, they go to iTunes. These users are going to be slower to convert, but will skew towards subscriptions. They just have to get used to the idea of ditching what is to them a valuable music collection (but is, in reality, worthless data) for the Spotify ecosystem. I have no doubt that they will, though, because of the value & the convenience.

But the ecosystem still needs to mature. For instance, the only reasonable way to use Spotify via my home theater receiver is by creating a playlist & updating it via my laptop or phone, but even then the playlist doesn't update in realtime, & it has to be manually reloaded via the remote any time the playlist is updated. I also can't play local files through any extra device except for my phone. So these ancillary experiences (home theater, car) still need some work. But it's still lightyears beyond the iTunes experience.

One other note, Spotify has done very little to publicize it's streaming quality. I don't know about all devices, but Spotify Premium streams @ 320kbps on both the desktop & mobile devices, as well as my home theater system. I suspect Spotify offers 320kbps streaming to all devices it's compatible with.

As far as I know, iTunes is still at 256kbps.

That is because nobody gives a rats /&%$ about it any more.

Spotify and Pandora and businesses like them represent the bottom of the music industry.  Rock bottom.  If you can't afford your operating costs, you have a shitty business.  The sooner we get past these, the better.

You obviously don't listen to music much, do you? You know... like... for fun.

Sorry man, if you want further explanation, I make records for a living.  Spotify and Pandora and other streaming services like them sound like ass as well.

All the more reason you should want Spotify to be successful & profitable. Unless people don't listen to your music, in which case you should despise them, because they pay based on merit.

But not because they "sound like ass," Spotify premium streams sound 25% better than iTunes downloads (256kbps * 1.25 = 320kbps).

"25% better"

you're an idiot on so many levels it's hard no know where

to begin with people like you....

You could always start with the math.

Spotify streams are 320kbps. iTunes downloads are 256kbps.

Go.

To clarify, that's Spotify premium streams, not the free streams.

There you go again. Everyone has a shitty business model. What kind of business model do you propose? Clearly you hate radio, because like it or not the internet is the future of radio. Where would music be without radio? It certainly would be a lot worse off.

A world of only itunes would be a pretty bad one. No one would find new artists, no one would find new music. Because we can't have radio. Can't have music (even clips) on that damn youtube. And Facebook/Twitter/Social media be damned. Can't share music at all, even by legal means. What a joke.

I'll accept 16-bit, 44.1 kHz files from CD as the reality they are, but I'd rather have 24-bit, 192 kHz files as the deliverable medium to the consumer.  Perceptual coded tracks will always sound like ass, moving target dynamic range and frequency range encoding is slippery at best.

So you're against the iTunes store, too? And Amazon?

I don't get the impression that you've actually heard 320kbps audio in any practical situations. I think you're just making a semantic argument.

It's been shown time & time again that consumers can't tell the difference between anything above 192kbps & cd quality audio. Part of this is the low ceiling created by hardware. Part of it is that most music today is already super compressed & people think distortion is part of the song. But mostly people just don't care & aren't listening that closely.

320kbps sounds great to me, I can't hear any distortion at any volume that doesn't bother my neighbors through my onkyo/b&w/outlaw system. Any distortion that does occur probably occurs between 16 & 20khz, which I probably can't hear (speaking conservatively... I haven't tested it, I might be able to hear higher), or below 29hz, which my 8" sub doesn't reproduce (not a common frequency range in the music I listen to, though).

But the real point to make is this... the best selling albums of all-time were all released at the end of the vinyl era, & were bought as records, again as cassette tapes, & again as cds. And maybe again as iTunes downloads. If you're buying iTunes downloads or Amazon downloads or whatever, you're going to have to repurchase those songs in a lossless format IF iTunes ever converts to cd audio-quality files. Spotify, on the other hand, upgrades the quality of it's streams as it's practical. They've already passed iTunes. When bandwidth allows for it, you tick a box in your preferences & your entire library is full-resolution. It's never going to be hi-res audio, because that's just dumb. But it will be lossless OGG as soon as bandwidth allows for it.

Granted, Apple is already combatting it's own obsolecsence with iTunes Match, which currently streams @ 256kbps & could be upgraded. But why would you pay $50/year PLUS $1.29 per song when you could pay $120/year for Spotify & get their whole catalog? The $70 you save with iTunes Match will get you about 4 songs per month.

I bet in a blind A/B test in ANY real world situation (including decent hi-fi in a normal living room) you wouldn't reliably be able to tell the difference between Spotify hi-q streaming and 44.1khz 16 bit audio.

And the idea that anyone other then a miniscule number of audiophiles would be interest in 24 bit 192k is ludicrous.

Personally i love Spotify (despite its faults) as i've found so much new music becuae of it, and would be sorely dissapointed to see it go belly up.....and yes, i'm one of those paying the premium service.

There is some serious editorializing going on in this report. Editorializing with an agenda.  Maybe a "hey let's get all pandora-like and renegotiate our deal with the labels" agenda.  Before we get our briefs in a wad I beleive this editorializing is by someone without an accounting background. Or a liar.  Look at the numbers.

revenue increased by $150 million dollars.  Cost of Sales which is where the payments to rightsholders  live,  increased to $137 million.  So every new dollar going out to rights holders is patently untrue. To the tune of $13 million dollars at least. Probably more (not all of that $137 million is payments to rights holders). 

Now how did they lose more money?  personel costs increased 178%!!

Pay attention folks  THIS IS THE FOLKS WHO RUN SPOTIFY OVERPAYING THEMSELVES!!!!!!

The real headline should be 

"Spotify Executives Are Overpaying Themselves Putting Company At Risk"

But since practically everything that comes out of silicon valley (now) involves fucking the artists and investors.  There is zero chance these  guys are gonna cut THEIR pay.  Cause they aren't real entrepreneurs, this looks more like a wall street pump-and-dump scam.   

The right thing to do is to let the executives take pay cuts or let these guys fail.  But that's not gonna happen. The corporate music businessis too stupid to figure this out.  Mark my words they will agree to accept less money. 

You can't make these claims without knowing how many new employees these costs are spread out over. Obviously they expanded, there's not enough information to make the claim that they're overpaying themselves.

Clearly, Spotify is overextended & relying on venture capital, in hopes that the needle will swing from free users to subscribers... whether that's a cost of doing business in this environment is up for debate. But it's not fair at all to claim that they're overpaying themselves until there's more data.

As far as I understand it, Ek's estimated wealth is tied up ownership of the company, rather than salary.

David, hit on a great point about lying- and somehow this is pervasive in society today.  Not sure if it's a result of being able to hide behind the internet or what.

We saw it full-force with Romney at the debate this week and whether America sees through it remains to be seen.

Venture capital is certainly about lying.  Lying to take people for millions. 

Excellent point. Nobody should be making a dime from music until the artist does, and right now, the artist makes nothing.

you must realize that 178% figure is because spotify is going through a major expansion and hiring many new people...

Last I saw, Sony, UNI-EMI and Warner Music owned between 2 and 5% of Spotify.  Aren't they just really paying themselves? Doesn't it make sense for the labels to let up on these "licensing" fees as the Spotify increases userbase?

I thought it was initially more like 18%...

I guess the pie got bigger and their slice smaller?

Remember, UMG has more bargaining power now to from the recorded music side, and swing more weight to get a better deal overall..

oops should've said 2 to 5% EACH.  That would be in a range of 8% to 20%.  These figures I'm sure have changed recently.  

Ok… so the thing to ask is why are we hearing this and why are we hearing this now?

The answer is here:

“every dollar Spotify is generating immediately exits the company due to licensing fees...”

OK so what’s the deal…..

Well this leaked “news” is all part of the orchestrated campaign by the “Internet Association”and their associates...

http://www.precursorblog.com/content/top-false-claims-new-internet-association-part-2-internet-oz-series

http://www.tnr.com/blog/plank/108053/the-internet-now-just-another-special-interest#

Their aim is to build up pressure to slash royalties to musicians and songwriters. More for them less for the creators and rights owners.

Currently they are lobbying for the Internet Radio Fairness (for everyone but artists) Act

http://musictechpolicy.wordpress.com/2012/10/01/getting-irfad-pandora-lobbyists-shakedown-continues-as-the-national-association-of-broadcasters-lines-up-to-oppose-artists-again/

The AFM is asking musicians to write to their congress critters:

https://www.facebook.com/notes/afm-american-federation-of-musicians/say-no-to-slashing-musicians-pay/10151236245456085

Spotify is not internet radio. None of this really impacts them.

AFM is full of crap. No one envy's Pandora's revenue growth. Why? Because they don't have a cent of profit. Pandora is suffering. Bad.

Sorry, but you are missing the big picture...

Streaming, Internet radio, Downloads, it's about minimizing your pay-out to artists and rights holders so as a business you can maximize profit.

It's about re-focussing the conversation to artists compensation rather than on viable business models that componsate artist fairly.

The AFM is trying to ensure artists are compensated and not just exploited. Pandora's business model has difficulty not because of paying royalties but because they are having to compete against sites which steal music and do not componsate rights holders. The solution is to solve the problem of music theft and piracy. 

Spot on.

Piracy is the only important issue in music business today -- yet, all major organizations ignore the problem.

We need a new, global organization to fight piracy.

I don't think I am.

AFM assumes that artists are getting paid a fair rate already. Of course no one wants to be paid less, but notice not a single artist is asking whether what pandora pays is actually fair. Take a step out of the music world and into the radio world and you will see a completely different picture. It's not about maximzing profit, it is about making any profit. All internet radio companies are struggling and extremely few are making ends meet. Broadcast radio stations are hesititating to invest into internet radio because it is viewed as completely unsustainable. Yet every single broadcaster knows that internet is their future. AM is dead, FM is dying. They need to transitition to the digital world and they can't afford to. Investors are hesitating to invest in companies that have internet radio products, because they want a return on their invest at some point. The internet radio industry is a mess because of rates artists claim to be "fair" or in some cases even too low. An young industry capable of wild growth and massive returns in the future is being limited by these "fair" royalties. This is radio as a whole. Radio has helped artists greatly by driving sales and introducing people to new artists. Internet radio helps artists equally as greatly, if not more by not sticking primarily to major artists. Does this not matter to artists anymore? Has it really become all about the instant money and getting the "fair share"? If the entire internet radio industry is struggling to make ends meet, is it possible this "fair share" is not truly fair?

Piracy has absolutely nothing to do with Pandora. If piracy disappeared over night, Pandora would still be paying 60-70% of it's revenue and still not be making ends meet. It doesn't not matter if Pandora was flooded with new ex-pirates (which would never happen, because music pirates already use Pandora because it is freely available to everyone) they would still not make ends meet. Scale is not working. When the pureplay royalty rate was struck everyone thought scale would save Pandora. After all these years, it hasn't. And that rate is about to expire and an even higher even more unstatainable rate is about be in it's place. That could effectively take 100% or more of Pandora's revenue, and almost certainly Pandora makes more per listener than any other internet radio company through it's extensive ad platform. Piracy is not the problem Pandora faces.

The only way to combat piracy is through the invasion of privacy. It is a battle that can never be won and a battle where everyone can lose. That is why people are reluctant or flat-out refuse to fight piracy, and they should.

Sorry, but you're wrong -- it's very easy to stop mainstream piracy and no privacy will be invaded in the process.

The ISP's just have to block the crap. Like they already block child pornography, which I'm sure we all think is a good thing.

Yes, they'll whine a bit. They do make a very decent living from selling access to stolen property.

But that's their problem, no?

ISPs block child porn? Really? You need to do some serious research. They don't block anything. They keep some logs and when law enforcement comes calling they turn over some information. Of course if the person has any technical knowledge at all they will use encryption. Then the ISP has no idea what they transmit.

If you think ISPs can block pirated content you have no idea how the internet works.

Make encryption illegal. It's not rocket science..

Hahahaha! You are funny!

Piracy IS the problem. Pandora make their monies from two main streams - subscriptions & strategic partnerships.

With the rampant piracy, users use the free Pandora service to listen and discover new artists. If they decide they like an artist's rather than clicking on the buy button (Pandora Strategic Partnership) they get the music from the file locker or torrent networks. The result Pandora has to rely on their main income from subscriptions.

Kill the piracy and make buying a breeze - a one-click to buy and  Pandora could turn into a sustainable model.

So how do we kill piracy?

Pirates, pirate to make money! Period! Cut off their income stream and you cut-off their incentive.

The battle against online copyright theft should  "follow the money" and target advertising and payment card firms, the solution is to go after the payment processers, ad- networks, and the venture capitalists that fund the piracy.

Unfortunately, the anti-artists rights and anti-privacy technologists such as the “Internet Association” are pumping billions of dollars into lobbying and astroturf internet campaigns. They are the wolf in sheep's clothing, they last thing they want is privacy or artists and copyright holders rights!

We in the music industry, artists need to speak out to be pro-artists rights and pro-privacy to counter the mis-information by groups like the "Internet Alliance".

Ironically even Google UK policy manager, Theo Bertram agrees:

http://www.pcpro.co.uk/news/375613/google-follow-the-money-to-fight-piracy

Ironic because ... Google makes money from wrapping adverts around pirated content....and as part of the “Internet Association” is lobbying to continue to do so ....

http://www.pcpro.co.uk/features/374083/google-the-pirates-best-friend

We can't reach hardcore pedophiles & pirates.

But we can stop ordinary people from breaking the laws.

See, ordinary people don't have to steal. They steal because it's easy.

So they stop if it gets complicated -- or dangerous. They have work and families so they don't have time to play with encryption and vpns.

It was possible to stop mainstream child pornography without invading your privacy, and it's possible to repeat the trick when it comes to piracy.

The answer is make legal easier and safer than piracy. That is exactly what Spotify does. Why fight it?

You find it complicated to buy music @iTunes, but easy to use encryption and vpn's, yes?

No I use streaming and I pay for it!

...oh, and the only reason why some people still shy away from fighting piracy is FEAR.

All professional artists and labels on the planet hate piracy. They lie if they tell you otherwise.

We need to tell the public that pirates will be sued. A lot of software companies already do this. Many of them have pages where you can report piracy. This is the way to go.

The "suing" thing didn't work. We need to send pirates to jail for very long durations (if not life). I don't care if we have to build 100x more jails, but we need to send the message that piracy will NOT be tolerated.

Suing pirates works just fine, it's done all the time. Sure, riaa chickened out but that just shows they're dinos.

We need a modern organization to solve the problem.

A modern organisation? Like the North Korean governement? 

A modern organization, yes. Riaa and the rest obviously don't work anymore.

We need new answers, new ways.

Look at the software industry; they have pages where you can report theft. Look at the movie industry, they sue thieves. Look at the porn industry: They not only sue pirates but takes all kinds of other initiatives, including this:

http://torrentfreak.com/90-days-of-killing-cyberlockers-50-dead-more-than-500-injured-121006/

http://stopfilelockers.com/

We need a new, creative IP organization who understands the piracy industry and wants to stop it.

So start it your self! 

Fight Piracy industry fine with me ,but leave fans sharing the music they love alone.

Yeah let's trust what a financial firm tells.......

Right, analysts said this about Amazon in the late '90s -- "if it's such a great model, why does it keep losing money?" Lots of people thought Amazon would never be profitable. A big miss in this analysis is that while the cost of goods sold in 2010 was higher than revenues, the cost of goods sold in 2011 was actually lower. It's (very) early for Spotify, and too soon to assume they won't be able to get more advantageous royalty terms with the major labels as they gain influence and leverage. Not "alarming," not "broken." Not yet.

"and too soon to assume they won't be able to get more advantageous royalty terms with the major labels as they gain influence and leverage."

They don't assume that. They already know it. Pandora's royalties are not set by major labels, they are set by CRB and sound exchange. Both of which want to raise Pandora's rates by a large margin. There is nothing internet radio companies can do about it, because there is no negotiating.

Isn't the article about spotify?

Isn't Pandora's business model different than spotify's?

While your comments do have merit, I think you need to relax a little bit Casey and save the comments about Pandora and the CRB for an article or comment about Pandora and the CRB.

DOWN WITH SPOTIFY!!

Is anybody making good money from Spotify?

The full PrivCo report, which links to the full Spotify financials (which look pretty ugly):http://www.privco.com/alert-privco-exclusive-spotifys-just-closed-full-year-financials-obtained-by-privco-reveal-rapid-revenue-growth-unsustainable-business-model-revenues-up-151-to-244m-yet-cost-of-sales-up-98-and-losses-ballooned-60-to-59m-somethings-gotta-change-soon-on-spo

From the privco #s (now confirmed as "totally accurate" by spotify to CNET), Spotify is spending 98 cents of every dollar of revenue just to pay music royalties. You can't sustain a business spending 98 cents out of every dollar on "Cost of Goods Sold", leaving 2 cents on the dollar to cover ALL staffing, marketing, admin, tech, etc etc etc. It's called math. It doesn't work.