To most music fans getting used to Spotify or similar services, it feels like music streaming services business is healthy and just starting to take off. Within the music industry however, it is no secret that music streaming leader Spotify in its current form is an unsustainable business model, losing millions of dollars each year…
Reputable financial analyst PrivCo released an overview of Spotify’s financial situation showing roughly $37.5 million net loss in 2010, and a whopping $60 million net loss in 2011. The financial firm stated that the 2011 numbers were “alarming” and “unsustainable”. Granted, the company is going through an extensive growth phase, expanding to new countries and hiring new employees, however this is shadowed by the fact that almost every new dollar of revenue is going directly towards paying music companies, largely, the three major industry recording giants holding the rights to most of the world’s popular music repertoire. PrivCo CEO Sam Hamade expressed one of two things needs to happen to keep the company afloat – “Either the online music royalty payment model to artists and music companies needs to change, which is highly unlikely in the near term given that digital royalties are record companies only growing revenue stream, or Spotify needs to ASAP introduce a tiered subscription system, as opposed to its current flat monthly fee model, which is clearly a broken business model.”
It isn’t clear whether Spotify will introduce a tired subscription system yet, the company is currently betting on turning free users in to paid subscribers. Entrepreneur and investor Sean Parker has predicted Spotify will take over iTunes in terms of revenue within two years, however this could be majorly derailed if the rumors around iTunes launching it’s own streaming service are true – An Apple streaming solution would be an undeniably hard competitor to beat in winning over the masses of consumers happy with their other Apple products.