A confidential industry source has leaked information to techcrunch.com writer Eric Eldon that Spotify’s financial figures in 2012 are suggesting that things may be looking brighter than expected for the company in the future – As covered in a recent post of mine, the service reported a loss of $60 million in 2011 from total revenue of $244 million due to large operating costs and other expenditures. The source has claimed that in just the first six months of 2012, the streaming service made $200 million in total revenue, with a projected end of the year revenue to clock in around $500 million, if current trends continue. Due to high licensing fees and other operating costs, the source suggested the company will likely post a loss of $40 million in 2012 at the end of the year.
Losing $20 million less than the previous year sounds good, right? Prehaps to you and me, it’s not great news, however the company has received another round of funding to fuel ongoing growth and to cover losses, amounting to more than $100 million. The question it comes down to is whether or not the service can obtain enough paying users to make the service a sustainable, healthy company for the long term. Some argue that the future release of the browser-based version of the service could increase it’s user base, however growing competition from ambitious and expanding companies like Deezer, Rdio and WiMP make the glass look half empty.
Do you think Spotify has what it takes to post a positive net income by 2017?
Paris-based digital music service Deezer recently announced $130 Million in its fourth funding round from Warner Music Group’s owner Access Industries, a multi-faceted holdings group in the natural resource and chemicals, real estate and media and telecommunications industries. Deezer appears to be gearing up to compete with Spotify on a global scale, however opting for a slightly different strategy – The company is currently targeting 200 countries world wide, many with few existing digital music markets, but staying away from the biggest piece of the pie (and also the biggest legal headache), the United States, at least for the time being. Deezer CEO Axel Dauchez stated in December of 2011 that “due to market saturation and low growth forecasts” along with the fact that the two represent only 25% of global music consumption, the company has decided to bypass them (U.S. & Japan)”, at least, for now. Nevertheless, within just five years, the five year old company has obtained 2 million subscribers and 7 million active monthly users compared to Spotify’s 4 million subscribers and 15 million active monthly users. With this new injection of funding, Deezer has announced a global strategy plan to become the leading digital-music service world-wide, representing 5% of the music market by 2016. Interestingly enough, Mr. Dauchez states the French company doesn’t see it’s competition as Spotify, but iTunes and piracy.
What do you think? Is Deezer’s strategy to bypass the two largest music markets (United States and Japan) for now in order to concentrate on conquering smaller – but easier penetrable (both legally and financially) markets is a sound strategy? Does Spotify has anything to worry about? What should itunes be doing to compete with these streaming services? What does it means for the music industry now that major record labels are buying large shares in digital music companies like Spotify and Deezer? So many questions, and the story is still unraveling.