Ad-Based Blaaah: 83.5% of Spotify Revenues Come from Paying Subscribers

Ad revenue barely pays the bills, if that, and it rarely supports music startup models.

It’s not happening for Pandora, and it’s not a meaningful revenue source for Spotify, either.  According to financial filings spilling this week, Spotify now receives 83.5 percent of its revenue from paying, premium subscribers.  Which means that free listeners are mostly dead weight, unless they can effectively be transitioned to paid.

At the end of 2011, roughly 8 percent of registered users were paying (2.6 million subscribers, 32.8 million registered users).  These days, the company reports 4 million paying subscribers, out of roughly 15 million active users.  The company counted more than $56.6 million in losses for the year.

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17 Responses

  1. Casey

    Ad revenue doesn’t pay the bills. There is a common misconception that ad revenue is soaring for streaming companies and that artists are not seeing it. Well, it isn’t. And if 83.5% of their revenue comes from paid memberships, artists are indeed getting paid far more money from the free service than the ads are bringing in.

    • HansH

      So Premium and Unlimited users are sort of paying for streams by the free users. It’s getting more confusing every day.

      I wil have to revise my math on how the rates are calculated I guess.

  2. Theory

    Look…Google/Youtube do ok from ad revenue.

    Daniel Ek, do us all a favour and do a deal with Google?

    If he did that then the digital music industry (i.e. the music industry) would be fixed.

    • Casey

      That wouldn’t fix anything. Google has a significantly larger userbase and completely different platforms to reach their users. The ad revenue between the two can’t be compared

    • Visitor2

      Anyone who thinks doing one thing will fix the music industry clearly hasn’t worked very long in the music industry.

      • Anthony

        The industry can’t be “fixed” without authoriatarian measures being taken, which, most of us don’t want.

        Everyone just needs to accept the the fact that selling music shouldn’t be the focus anymore. Diversifying your product mix is the smartest thing any artist can do, and the ones that are doing it successfully are surviving.

    • Erik P

      Google/Youtube also buys up unused bandwidth at a fraction of the cost. If they had to pay full price for bandwidth they wouldn’t be able to earn a profit either…

  3. @mattadownes

    Googles revenues were $29b last year, $28b of which were from ads.

  4. Yves Villeneuve

    In my estimation, the only way Spotify could turn a decent or significant profit is to raise subscription prices without decreasing demand for subscriptions.

    • Steven Corn (BFM Digital)

      Actually the only way for them to turn a profit is to convince more people to pay something for the music that they enjoy. anything. Even the basic tier of $5/mo would go a long way to making Spotify self-sustaining.

      Why won’t a music consumer be willing to spend the same amount of money as a good latte for an entire month of listening?

      That’s the key question. It’s not about ads versus subscribers. It’s about the perception that paying for music, one way or another, is considered optional.

      If given an option, people won’t choose to pay. I wonder if Spotify created a pay-what-you-can if the end result would actually be more money collected. Certainly the per listener average revenue would fall. But i suspect that the total revenue would increase. I’d love to see that experiment put into place.

      • HansH

        It’s not the only way. An easier solution: lower the royalty rates a little and there you have the profit.

        • Frunobulax

          His point is that people want to pay a royalty rate of 0.00% thats it no more.

          Until someone can convince the majority of music “consumers” (especially the 25 year old and under demo) that music has value and should be paid for, the music business is doomed.

  5. jw

    As long as Spotify has VCs footing the bill, they don’t have to focus on their advertising model. It’s, evidently, the least mature aspect of the business. And Ek has said explicitely that they aren’t focusing on revenue. So it’s very premature to make judgments based on these statistics. At some point that unit will be overhauled & when they expand their ad offices & it’s operating more like Clear Channel… probably better than Clear Channel… the numbers are going to tell a different story.

    Why can’t Spotify be just as profitable with advertising as Clear Channel?

    • Visitor

      Spotify pays a lot more for their music than Clear Channel does, not exactly a fair comparison.