Spotify's Financial Results Reinforce Just How Broken the Music Business Is
Spotify's recently-released financial results show that despite its massive success, it is still incapable of making a profit—and because of the way the music business works, it will probably never make one.
Spotify’s revenues accelerated in 2015, growing by about 80% to 1.95 billion Euros or about $2.1 billion U.S. dollars; however, Spotify’s losses also expanded to $206 million, up from $184 million in 2014. In 2015, the amount that Spotify had to pay for royalties and distribution fees climbed by 85%, to about $1.8 billion. In other words, costs grew by more than revenues did.
Spotify, which has been planning for a public share offering for some time, was forced to raise a $1 billion round of convertible debt financing earlier this year in order to fund its operations because equity investors weren’t prepared to put in more money at the valuation the company wanted.
That’s partly because the digital music business looks increasingly fragile, at least the way it is structured currently. Of every dollar that Spotify brings in the door in revenues, about 85 cents goes right back out the door again in the form of payments to the music industry. That number is climbing at a faster rate than the company’s revenues are, and still there are complaints that streaming music services don’t pay enough money to artists.
