Had the pleasure of visiting Spotify in New York City over the long weekend. Young company with a very driven team focused on solving a big problem around piracy and content distribution.
Current numbers indicate 6 million paying subscribers out of a user base 24 million listeners. 83.5% of revenue is currently driven by paid subscriptions.
Spotify pays out the majority (approaching 70%) of revenue (advertising and subscription fees) to rights holders: artists, labels, publishers, and performing rights societies (e.g. ASCAP, BMI, etc.). In just three years since launching, Spotify has paid out over 500M USD in royalties. Shift to digital delivery of music has also lowered the record companies’ costs.
The business model is different. Streaming is not the same as purchasing, and therefore it makes sense for each stream to generate a fraction of what a download brings in. Over time, frequently streamed tracks can earn real money, sometimes even more than sales could generate. Consider LTV vs upfront revenue stream. But how can the artists be compensated in the mean time ?
Advertising model supports free customers but Spotify pays per stream fee