Spotify Relies On The Big Labels For Most Of Its Music. It Thinks That Will Change.

from recode

Spotify is 12 years old and has never been profitable.

Last year, it posted an operating loss of $461 million.

Today, as it goes public, it wants investors to value it at something above $20 billion.

In order to believe that’s a good idea, you have to believe that Spotify has figured out a way to improve its margins, which it says it will do.

And in order to believe that, you have to believe that Spotify has figured out how to change the way it works with its most crucial partners: The big music labels.

Spotify hasn’t said it will do that, for good reason. Spotify and the big music labels are in a co-dependent relationship that is both fraught and fruitful.

The big labels provide Spotify with the music that makes up 87 percent of the company’s streams. Spotify provides the labels with billions in revenue, which is starting to replace the vanishing money the labels used to make from CD sales and digital downloads.*

But Spotify’s plans for the future do involve changing that relationship in the long run.

The idea, according to people familiar with the company’s plans, isn’t to cut out the big music labels or compete directly with them by signing acts to recording deals.

Spotify does imagine, however, that over time, a growing tier of music acts, or small independent labels, won’t use the big labels for distribution. Instead they’ll work directly with the streaming service.

More here.

Posted in Innovation, Technology and tagged , .

25 Comments

  1. I was surprised to learn that Spotify has been operating for 12 years and has never turned a profit. With that said, Spotify wants investors to value it at about $20 billion. In order for this to be the case the company must improve their margins which they believe they can do. It is interesting however to think about how that could be the case. The main portion of income this company has is resultant of the small fee that Spotify Premium users pay in order to use their complete services. This however is only a small portion of the population as most individuals use Spotify Free or a series of free trials. In this day and age it is difficult to get the public to pay for music as through YouTube, Pandora, Sound Cloud, and other free outlets individuals do not have to spend money and are able to listen to any song they can image in a few clicks.

    In the case of Spotify, label companies provide Spotify with music making up 87 percent of content the company provides while providing these respective labels billions in revenue. This has come to replace the money these labels make on CD sales and legal digital purchases. Although this is the case currently Spotify does want to change this relationship with labels. They soon want to begin signing acts to record deals. They believe overtime that entertainers will work directly with them instead of those music labels that currently provide the content. They then will produce profit in this way and will create good and fair agreements with artists in order to form a better relationship.

    I believe Spotify has come up with a strong business plan. By sticking with entertainers large enough to have fans but small enough that large labels do not purse them they are opening the doors to many entertainers that may not have the same benefits and abilities as big name stars. They still should hold on to their current relationship with these labels as there is not a strong chance they will gain the business of big name artists yet they know that and understand that in order to stream music they need the content these stars produce. I ultimately believe that this can be a good strategy for them and look forward to see if this plan come to be.

  2. Spotify only recently went public after 12 years and is asking to be valued at $20 billion by investors and posted an operating loss of $461 million last year in 2017. According to an article published by Recode, Spotify has been planning to increase its margins by getting direct relationships with music artists and slowly moving away from music labels. Their current deal, however, has pros and cons. The big music label companies provide up to 87% of Spotify’s streams, and in return, Spotify provides the record label with billions in revenue. Spotify mostly makes it money through their paid subscription service called Spotify Premium. It costs an individual $9.99 per month. If a user doesn’t pay for the service, they have to listen to ads every now and then, which brings in only 10 percent of Spotify’s total revenue. The other 90 percent comes from their 70 million Premium subscribers. In moving away from large record labels, Spotify doesn’t plan to completely sever their relationship and compete directly by signing deals with artists. They’ll still have to maintain some type of relation/contract in order to provide streaming for older songs. What Spotify hopes will happen is that artists/producers will go directly to Spotify for distribution. Besides giving Spotify more room to come to better terms with the artists, it also benefits the artists themselves since it’s possible they will be able to keep more of the money it brings in because of not having to go through or pay royalties to the big record label companies. In the age of the internet, the need to rely on large record labels to record, market, sell, and sometimes produce artists’ music is diminishing. With YouTube, and other social media sites, as well as apps like SoundCloud and Spotify, its more possible than previously for artists’ to market themselves, for the most part, as well as find other artists to collaborate with. Additionally, artists’ attitudes toward streaming services are and have been changing to become more favorable toward them. For example, when Metallica was against music streaming back in 2012, it may have been due to the fact that their record label didn’t want to let them go since they would get control over their own music, then they struck a deal with Spotify directly. Lastly, the world of media and technology is changing. Streaming is taking over the declining physical sales which were once handled by the record companies.

  3. As a Spotify user I really hope they get this right. Posting a $461 million loss last year looks really bad to the average person who’d does not know Spotify’s plan. What Spotify has done to this point is already impressive when it comes to music streaming. Years ago people would download tons of illegal music which is why bands like Metallica got upset at similar streaming services. If everything goes right for Spotify they could come out of this making a lot of money and changing music forever. It was a smart choice opting to partner with the major labels at first because they wanted to get as much popular music as possible and become a recognized company. Just like Facebook, they’ve created a large user base that is loyal for the most part. Unless they make a drastic change to the business model they will most likely keep a lot of their users while they make these smaller deals.
    There are certain instances when taking a big loss is necessary to the final plan and this is one of those instances. While it seems dangerous to take this kind of risk I personally trust Spotify to be successful. They are no longer a small company like when they first started; they have established themselves and undoubtedly have a strong team. I think the difficult part for Spotify will be getting enough small acts to hit their 35% margins. Making deal with bigger labels enabled them to get a lot of acts included in a single deal. What they are attempting to do now will require them to reach out to a lot of bands. The article mentions the possibility of acquiring Taylor Swift as one of the individual acts. Making this deal would be a huge benefit for Spotify’s new approach, especially if they can get her soon. With her following she could easily start a trend and have other popular singers partner with Spotify as well. Soon enough artists will be coming to Spotify and it will make things a lot easier. The key to this might be signing a popular artist and the rest will naturally play out. I’m excited to see how this goes in the future but I’m not opposed to finding a new way to stream if I don’t like what happens.

  4. In this course we have discussed the numerous benefits of becoming a “platform.” Facebook is a platform that basically follows its own rules and regulation. Spotify, on the other hand, is simply a streaming service at this point, but they expect that to change in the near future. Valued at around $20 billion, Spotify has NEVER been profitable in its 12 years of operation. Why do people continue to invest in a company that has never posted a profit? Spotify has big plans to transform into an extremely profitable company. Spotify does not plan to compete with big music labels, but they plan on a tier of music that involves smaller musicians that will work directly with Spotify instead of an independent label. This way, Spotify will have better margins and not lose out on profit to record companies. This is comparable to Netflix. They used to profit solely off of the content they would license, but this is a costly business tactic. Now, Netflix is full of original content and they are worth more than ever. It will be interesting to see if Spotify is able to follow in the steps of Netflix. Now that Spotify is a public company, people will be tracking its progress closely and they are sure to see a lot of change in the future.

  5. I would choose Spotify over Apple music. I would choose Spotify because you do not have to pay for it to listen to it, and it provides mainstream and non-mainstream artist. Anyone can post onto Spotify and because it is free (with the exception of ads), you can listen to anything. Along with that, I know of a few people who use Spotify to post their music. These are musicians not signed to contracts, but just making a music on the side. I definitely believe that Spotify has the capability to get up to 35 percent margins. Spotify also has a good tactic in jumping into the music industry. I would also honestly post music I make or made to Spotify. It is a good platform for musicians who want others to hear their music. It is honestly like YouTube without the videos on subjects other than music.
    Spotify has a freshness that other music platforms do not have. I have not used or touched Pandora, IHeartRadio, and Apple Music in a long time. Each of these platforms have their own brand, and Spotify almost has a brand that is not yet established. Its brand is one that has not negative connotations to it, and it is also user friendly. I have to say that I did struggle when using Pandora.
    It’s tactful that Spotify has now made itself a public company now. I feel that because they have a good user base, and also because its brand is not yet established that Spotify has an advantage. Spotify did have to rely on the big companies in order to get a bigger user base, and get its name out there. Now, though I feel that their strategy of taking on small artist is a great strategy. I also feel that Spotify working with the big companies was also strategic. In the future, I believe that Spotify will not have to rely on the big companies to put music on their platform. I feel that big musicians will come to them, especially if they give them an incentive to come. Also, if Spotify can create singers like Netflix can create TV shows, it will attract many others to sign on with them. Spotify definitely in my opinion has a future.

  6. The music industry is largely a mystery to me so it’s very surprising to hear that Spotify for at least the past three years has been operating at a loss, with the total summation of the loses over those three years equaling 1.16 Billion dollars. Though this makes a lot of sense when you look at how much money they pay to “rightsholders” (https://www.allaccess.com/net-news/archive/story/173862/report-spotify-losses-total-1-billion-over-last-tw). As of 2017 they’ve paid out a total of 10 Billion dollars to “rightsholders” and also in 2017 they promised to pay 2 Billion dollars minimum to record labels alone over the next 2 years(https://www.recode.net/2017/6/15/15807382/spotify-revenue-2016-financials-guarantee-payment-universal-merlin). So when you operate at around 3 Billion dollars of annual revenue and right off the bat you lose a minimum of 1 Billion to labels and then you have to add finance charges, and you still have to pay the thousands and thousands of independent musicians, your costs rack up real quick.
    Still no one can argue streaming isn’t the direction of at least the short-term future. One way or another Spotify will find a way to make a profit and they very well could have with their IPO (Initial Public Offering). By taking their company public Spotify has raised some serious capital to try and figure something out to maintain their corner of the market. As the article points out they have a tenuous relationship at best with record labels which cuts deep into their profit margins. As of now those labels hold all the cards because without their music you alienate your customer base, which Spotify desperately needs.
    For the solution to this problem they should look to their fellow streaming service Netflix. While Netflix is meant for movies and TV, and Spotify is meant for music they could easily put in place some similar models due to the nature of how they provide their service. When Netflix first started streaming they got some real good deals with movie publishers because those publishers saw Netflix as a side project where they could make some quick revenue without much effort. Then Netflix exploded to become one of the most popular streaming platforms in existence and movie publishers realized they could do the same thing and make their money directly as opposed to giving a cut to Netflix. An example of this is Disney starting its own streaming platform instead of hosting their movies on Netflix. Netflix in yet another stroke of genius realized that one day publishers would wise up and discontinue their one-sided deals so they started producing tons and tons of original content.
    That meant that Netflix was no longer so reliant on outside sources to maintain their business. In order to grow Spotify needs to do the same thing and although the article says Spotify is hesitant to sign its own artists it would seem to me that unless Spotify wants to exist on the whim of record labels they need to adapt before it’s too late.

  7. As an avid listener of music and user of music streaming services, this article definitely caught my attention for many reasons. First of all, Spotify is going public. This is huge news for a company that has been around for 12 years but has not made a profit once. Now, they will be able to attract investors and possibly finally make it over the hump and start profiting. I found the fact that Spotify has never profited to be very surprising. I have always viewed Spotify as a huge company with millions of users. I know so many people who cannot live without it and prefer it to iTunes, Pandora, and other streaming services. Along with the millions of users, Spotify uses tons of ads. One would think that the combination of users and ads would generate tons of ad revenue but apparently this is not the case.
    Another aspect of this article that I found to be particularly intriguing is the fact that Spotify is considering working directly with artists and cutting out the middle man. In other words, Spotify is planning on signing artists to contracts directly as opposed to the artists signing with a record label and then having Spotify pay the record label for their music. By doing this, Spotify could cut costs dramatically. This could also have huge implications on the entire music industry. If this plan becomes a huge success, I feel that more and more music streaming services such as iTunes and Pandora will join in. If this occurs, then more and more artists will sign with these music streaming companies rather than the record labels. This will then cause two different things to occur: the music streaming services will make way bigger profits and record labels will lose tons of revenue and some may even go out of business. Another impact of this new method of business is that lesser known artists will have a far easier time making a living off of their music. Instead of being rejected by a record label, more and more smaller acts will be able to sign with these streaming services thus bringing them to a bigger audience and increasing their chances of being able to make a living off of their music. It will be very interesting to see if this move by Spotify will succeed or not and the implications it will have on the music industry.

  8. As a music enthusiast and someone who loves finding new music that would not have otherwise made it to mainstream radio, I found this article particularly interesting. I have always read articles and snippets about artists feeling underrepresented or struggling to take off in a market dominated by headliner, Top-40 artists. It was around this time that I also learned about the streaming service Sound Cloud. Sound Cloud is a service that allows for users to upload audio files to the site for anyone to listen to. It allows those musicians to, even if they do not make it mainstream, to have some sort of audience to their art. I did look into Sound Cloud as a means of publishing music before; however, there is an interesting legal stipulation. Sound Cloud, despite publishing your music, does not protect it at all. It still requires that, for total assurance of protection of your work, you should still file for a copyright on your music (https://help.soundcloud.com/hc/en-us/articles/115003567888-Do-I-need-to-copyright-my-content-).
    Another interesting legal conversation I have read about in regards to Spotify, as involving big name artists such as ACDC, is the decision to make their music unavailable on streaming services such as Spotify. Oftentimes, these artists do not feel they are being adequately compensated for the usage of their music on the service. Spotify is paying 70% of its revenue to the music industry, however, some do not see this as enough. In addition, streaming understandably does serious damage to album sales as individuals can simply listen to whatever song they want as opposed to purchasing the whole album. Another significant reason for artists pulling their music from the service is that they feel that streaming devalues their art.
    While I am not a musical artist who has an enormous financial stake in the game, I would have to disagree with the stance of the artists who are seeking to pull their work from streaming platforms or those who feel that the smaller artists deserve the spotlight. Permit me to get up on my soapbox and say that I feel that music is something that should truly be for everyone. I am not saying that we should not properly compensate artists for their work (we should), but artists should understand that not everyone in this world has the luxury to pay for their work.

  9. Spotify is yet another platform that we can use to listen, share, and download music. You can create playlists, get followers, and stream any music you want. Personally, I pay for the membership which is about five dollars a month. I get to skip songs, there are no ads, and I can listen to as much music as I want. That is why Spotify is so appealing to music companies, artists, and customers. It is an easy way to listen to as much music as you want. The problem however, is that Spotify wants to increase its profits. Deals with big companies are great, but they aren’t proving to be substantial enough for Spotify. So, they want to branch out to newer artists that have a following, but cannot get signed by big companies. I think this is a fantastic idea. It provides Spotify with more fans, more music, more profits, and the artist makes money too. It eliminates the need to deal with big companies. Bigger companies however are a little apprehensive about Spotify’s desire to sign on smaller artists. I think Spotify needs to be strong in this decision to sign smaller artists. Spotify has enough listeners to still remain attractive to companies that need to release music and make profits. I think that this could be a new era for music. Apple music, Spotify, and other streaming platforms make it easy to listen to music. In todays connected world it is impossible to ignore these companies. So, big record companies are going to be forced to stay in contact with Spotify to release new music and make a healthy profit.

  10. I have been using Spotify Premium for well over a year, maybe even two, and I have no complaints about the service, what they offer, and the music that is on the streaming platform. Although the company is yet to leave the red and flow to the green, they are quite successful. According to Digital Trends, Spotify has more than 70 million paying subscribers- double that of the closest and fastest growing competitor, Apple Music. Along with a positively growing subscriber rate, Spotify’s recent IPO broke headlines as an unorthodox method. Rather than filing with an underwriter, the CEO decided that the company will list its shares directly on the NYSE, under the ticker SPOT. This method however makes sense for the company that has posted an operating loss of almost $500 million last year, because it is actually a cost-cutting way to list shares; it allows employees and shareholders to sell directly to the public. Though unusual, the company had a stellar listing with shares soaring nearly 26% to $165.90 at open. At the end of the first trading day, the company was valued at a staggering $26.5 billion.
    Spotify was actually introduced to the public in 2006 when their founders wanted to create a way to target piracy, as the music industry was taking a hit with loss revenue and album sales from piraters. Their business plan goes as follows: Spotify allows users to either stream music for free if they are willing to listen to advertisements, or pay a subscription fee for a premium service, meanwhile paying royalties due to artists and record companies.
    To be honest, I am not surprised that Spotify has not been profitable. It is a great company and I love their services, but that is exactly it- they are a service. Netflix was not profitable for quite a while (began in 1997 and not substantially profitable until 2017), but then they finally got the ball rolling. I believe it will be the same for Spotify, but for a company to go public, without being profitable- ever- it quite dangerous for investors. Investors need to see results and if there are no results, with a high beta, it could be quite a scary, volatile company they may take a hit because of the uneasiness within the shareholder community. Personally, I believe in this company, as they have showed innovation within the platform and can definitely stay in the forefront of the music streaming business.
    https://www.digitaltrends.com/music/apple-music-subscriber-growth/
    http://www.scmp.com/comment/insight-opinion/article/2142213/spotifys-ipo-was-success-never-mind-its-loss-making-company
    https://www.recode.net/2018/2/28/17063892/spotify-ipo-margins-music-labels-streaming

  11. “Spotify talks about becoming a “platform” — a term it used dozens of times in its public offering documents and then again during its investor pitch day last month — it is talking about a bunch of different things. But the main one is that Spotify wants to connect music acts directly with music listeners and take a cut of the transaction.” The idea of eliminating hard copies is prevalent in today’s society as we see technological advances taking over what once was. The direct co-dependent relationship it has with big labels however is one that not only Spotify uses but other well-known music platforms as well such as Pandora, Sound Cloud, and Apple Music. From the outside, things look great. Spotify announced in January that it has 70 million subscribers worldwide, and the U.S. recorded music business grew 17 percent in the first half of 2017, compared to the same period of the previous year. Spotify depends on the major labels to supply most of the popular music that it streams, and it is hard to imagine that changing in the near future. Soon the company will no longer depend as much on the major label goodwill it needed to ensure its stock listing goes smoothly. The scrutiny it will receive as a public company will give it an incentive to focus on profitability: The company’s filing with the Securities and Exchange Commission shows that in 2017 it brought in $€4.1 billion ($5.1 billion) in revenue, with a loss of €1.2 billion ($1.5 billion). Yes, it is said that in the 12 years it has been active there has not been much profit, but without the need of big name labels in the future, things will change.

  12. Streaming has become the new way for consumers to access their television shows, music, and movies whenever they want. Spotify is a music streaming service that allows their users to make playlists out the over 35 million songs they have. In addition, consumers can listen to one of the over 2 billion playlists Spotify has on their network. For instance, one of your friends made you a playlist with all of your favorite songs, in the past your friend would have to put all the songs on a CD and burn it so that you could also have a copy. However, with Spotify, all you have to do is search the title of the playlist and anyone who uses the platform can listen too. Spotify and other apps like it have destroyed the need to pay for songs or albums on iTunes and allows for playlist structure unlike illegally downloading songs would. The concept of Spotify is like no other on the market, but surprisingly they had an operating loss of 461 million dollars. One could argue that a new company is never profitable at first however, Spotify is no spring chicken; the company has been around for 12 years and has never been profitable. So why has a company as well-known as Spotify not profiting from their unique music service?
    Spotify is flawed in the way it has structured itself, regarding their relationships with big music labels. Moreover, Spotify pays the big music labels in order for them to acquire and maintain songs from famous musicians and songwriters. Without the songs from the labels, Spotify would have little to offer their consumers. One way Spotify is trying to combat this problem is by eliminating the middleman aka the music labels. Furthermore, Spotify plans to attract small labels and performers to distribute their music directly to them rather than a large music label. Spotify has to be careful who they choose to scout because they do not want the big labels to pull out their copyrighted music, which includes future songs and songs from the past. In order to avoid stepping on the labels toes, Spotify wants to focus on performers that the big labels “won’t spend a lot of time pursuing”, yet those who have somewhat of a fan base.
    Spotify also offers three types of subscriptions to their consumers: a free option, premium, and premium for family. I think that if Spotify eliminated their free subscription, they would become profitable. Right now, Spotify charges $9.99 per month for their premium account and $14.99 per month for their premium for family account. In addition, Spotify offers $4.99 per month deal for students, which also includes Hulu. I personally use my brother’s Spotify and Hulu accounts because he utilized the deal and I am too cheap to pay for my own account. Furthermore, I think it is reasonable to assume that many people share accounts with their friends and family and because of this Spotify should increase the price of their subscriptions.

  13. While everyone is busy getting caught up in the fact that Spotify hasn’t been profitable for 12 years or how the company posted an operating loss of $461 million last year, most of you are still missing the bigger picture. Spotify has figured out a way to improve its margins, and it says it will implement the modifications soon.
    Most of Spotify’s music streaming is provided by big record label companies. The real incentive for big record label companies to partner with Spotify is because of the loss in revenue over the years from diminishing (almost non existent) CD sales and music downloads. Spotify and the big music labels are in a co-dependent relationship that is both stressful and rewarding. However, Mark Zuckerberg does not plan on maintaining all the partnerships he has at the current moment. The plan is to over time, put in place a growing tier of music acts, or small independent labels, who won’t use the big labels for distribution. Instead they’ll work directly with the streaming service and provide tens if not hundreds of millions of potential revenue when set in stone.
    When this happens, when Spotify can command better acts, and retain more equity in smaller/midsize acts/performers, the money will flow….
    I cannot express in words how Spotify will change the dynamics of the music industry once they implement these changes to their music service. People will become famous overnight, and the money will come. Talk about cash flow. Gross margins have already been up 21 percent at the end of last year because of new deals it has struck with the big labels. Now the goal here is to reach 35 percent gross profit margin. I don’t know what these numbers mean without looking at the cash flow charts, balance sheet, or income statement. Bottom line. However, I don’t see Spotify having any problem if they can make 100 niche artists by the end of 2019. That’s it. 100. Because you know what 100 means. It means having a percentage of every artist on tour, every clothing label they sign, everything. That all adds up. That’ll be a lot of money. If Spotify creates 100 millionaires by the end of 2019, mark my words they’ll be in the black by 2020.

  14. From the perspective of the consumer, Spotify is a dream come true. As a college student I pay five dollars a month for access to almost every song I could ever want as well as a subscription to Hulu. That being said, from a business perspective the streaming service leaves me conflicted. They have been constant fire from artists for the royalties they pay out on each stream. Each stream of a song comes out to only a fraction of a cent in the artist’s pocket (https://tinyurl.com/ycmrpp88). My favorite story to come out of this controversy came from my personal favorite band, Vulfpeck (https://tinyurl.com/yd5l6ye7). The group created a 5 minute silent album entitled “Sleepify” that they encouraged their fans to play on loop while they were asleep until the service removed the album. When all was said and done, the band had raised $20,000 and used the money to provide free shows for their fans. Ranting about the best band in the world aside, Spotify is infamous for not giving artists their due. This could be a result of the large licensing fees that the company pays to the biggest record labels. As this article points out, these labels make up 87% of their content. This article hypothesizes that if labels are cut out of the equation, revenues may increase for both Spotify and the artists. There is a noticeable trend in the streaming industry of streamers choosing to create their own content. Netflix, Hulu, and Amazon just to name a few have started their own studios that create content for the parent company to stream without paying a licensing fee. It would be almost impossible for Spotify to operate as its own label, but as this article theorizes, they would likely be able to cut individual deals with mid to low tier artists so that they do not to join a label to enter the Spotify library. These artists can be bribed with higher royalties to avoid joining a label.
    This would not fix the problem that Spotify has with large labels and artists. The article points out that artists like Drake and Taylor Swift will not be going independent any time soon to cut a deal with Spotify. If I were an investor I would still look favorably at Spotify’s future. Despite the fact that they still have yet to declare a profit, they have plenty of revenue without much operating cost outside of licensing fees. If this cost can be minimalized, Spotify could easily join the promising future that Netflix, Hulu, and Amazon represent.

  15. It was surprising to learn that Spotify seems to be operating at a loss and that it has never really be profitable. Currently Spotify is currently trading at around $159 up from around $132 when it initially started trading. This would suggest that the company is gaining traction on the market, however this is obviously subject to change in a relatively short amount of time. As the article notes Spotify is still subject to the whims of the big music labels. I think their hope in trying to sign smaller, independent artists is that one of them may become big and then persuade other top artists to negotiate with Spotify directly. I think the music industry is definitely something that could be subject to massive change in the future
    The issue I see with Spotify in gaining value is that its an app with limited possibilities which are constrained by the current set up of the music industry. It may be hard to gain anymore profits without being able to sign a big star directly. Being able to expand its clout even more in the music industry I think will be key to Spotify’s Future. Their current relationship with the record labels is going to create a mixed relationship as the article notes. The two may be able to come to better terms however both have such large interests that it will be difficult. It will be interesting to see if Spotify is able to sign their own artist as this may lead to the margins they are looking for in the future.

  16. I was extremely surprised to learn that over the duration of 12 years, Spotify has yet to turn a profit. Considering their massive amount of listeners with the most up to date music, it’s hard to see that NOT being turned for a profit. As an everyday listener on Spotify, the thing I enjoy the most is that just about any band’s music is up on the streaming site to listen to at any time. Reflecting back on this article, I think that the only way they could stabilize profits is if Spotify somehow gets big time musicians such as Eminem or Kendrick Lamar to leave their respective record labels to directly work with the company. However, many well known musicians are locked up tight with their labels and are highly unlikely to join Spotify. Essentially mid tier artists should be sought after under label’s radar to use this platform. Overall much effort will be needed to eventually create profit, but with a solid plan in place, Spotify might actually continue to grow in both revenue and notoriety.

  17. What surprised me about this article is that Spotify had a 461 million dollar loss last year. Spotify has been in business for twelve years and is currently going public, and want to be valued at around 20 billion dollars. With the music industry so large, I am shocked that Spotify is losing money. They are one of the largest streaming platforms in the world. Spotify currently has two different memberships, a premium and non-premium. The premium membership costs about five dollars, giving you the ability to play any song without any ads or interruptions. They also give students a free membership to Hulu. I am currently a member of Spotify and love the streaming service.

    Spotify relies on artists to make money. They have always partnered with big label companies to promote their artists’ music on their platform. Since they aren’t making money, they have a new plan to try and sign artists with a fan base. They won’t go for big name artists, but rather ones that could become successful in the future. I think this plan is brilliant because Spotify won’t be putting that much work into it and will gain new fans, and artists. This can be beneficial for them because they will still have partnerships with big record labels, as well as new artists, creating more profits for the company.

  18. It is extremely shocking to find out in 2018 Spotify released they had a loss of $461 million dollars. I have used Spotify for several years and have always thought they were a mogul in the music industry, but having significant losses tells me otherwise. It is also insane that they have been running their company for 12 years and yet have never been profitable. In 2017 I roughly listened to 50,000 minutes of music, I do pay for their premium fee, and I’ve never had any issues with their app or company. I thoroughly enjoy their music app and would personally never switch to another music playing service, but their $20 Billion value proposed to investors is absolutely outrageous, but after doing some research they have significantly grown their income in 2018 after going public. Spotify reported a modest growth of 87 million subscribers which turned into $1.38 Billion in revenue, which was up 31% from the previous year. As stated in the article the Spotify CEO Barry McCarthy did not want to keep striking major deals with big labels in order for his predicted growth of 35% margins to be attainable. I think it was a fantastic idea for Spotify to go public and not deal with the ‘big fish in the sea’ and try to innovate music for everyone, including new artists who don’t have a record label deal as well as the chart toppers who are necessary for their brand to grow.

    All in all Spotify has done a fantastic job in my opinion with giving the listeners exactly what they want. We have thousands of artists at the touch of a button and can truly explore any genre any time of the day. It speaks volumes to their company that they forced Apple to create a similar streaming app to stay in competition. Apple started the streaming/buying songs for their iPods, but Spotify has established themselves as number one.

  19. It is unequivocal that many, if not all, individuals have used or at least heard of the music streaming service, Spotify. However, what may not be known, at least it was not to me before having read this article, is that Spotify has not seen profits since its birth in 2012. In fact, last year the company noted a loss of 461 million USD. Despite this, the company has asked investors to value it at over 20 billion USD. There is a major discrepancy in company performance and evaluation. However, Spotify seems to think it has the remedy to solving its unprofitability.

    This remedy, as mentioned in the article, is to have artists sign directly with Spotify, instead of signing with a record label or agency as is the norm. Not the biggest artists that everyone is familiar with, but rather individuals looking to make a name for themselves. In looking to attract artists like this, Spotify’s leaders demonstrate quite an intelligent thought process. First, in looking to attract low-profile artists, Spotify has a real no har, no foul relationship – the company can just serve as the platform in which the artists’ work rests. If the artist excels, both parties will be happy. Regardless, at the end of the day, the artist will have exposure on arguably the most successful music streaming service. At the same time, Spotify skips out on buying the rights to the music from the big record labels, making its paycheck, which as of right now is nonexistent, larger.

    Spotify also displays its intelligence in this decision in a different aspect as well. In looking at low profile artists, as I had mentioned, it does not really interfere with the business of big music labels, which according to the article, makes up 87 percent of Spotify’s streams. So, even though Spotify is attempting to compete with such organizations, in can do so in a way that, in the grand scheme of things, does not hurt the larger record labels’ business.

    However, I do see some issues with what Spotify is looking to implement. My primary concern is how a streaming service company can promote exposure of low level, up and coming artists? While a big record label has been in the business for decades, Spotify has only existed for a little over one – and that’s in the streaming business, not the music production one. The connections, benefits, and opportunities that a record label can provide seem more wide-reaching than that of Spotify. Some individuals dedicate their lives to producing music. It is the means in which they subsist. If Spotify is looking to sign such artists, it needs to have a way to ensure that they have some type of compensation, as it will likely take time for listeners to learn of them.

    Another concern that I have, as voiced partially by the article, is what the big companies that sign artists be thinking of Spotify’s move? Though they are not going to lose any money as of right now, as Spotify does not propose to sign really big names, what will they think of Spotify trying to stamp its foot into their industry? Spotify needs to be careful not to overstep and steal too much potential business away from other record labels because, as the article indicates, they could “go nuclear.” And then, Taylor Swift and Drake won’t be the only names excluded from the streaming service.

  20. Any person with a phone nowadays knows what Spotify is. Spotify has become one of the largest music stream platforms to date. They have set many precedents in their time as a business. This article bring light to the issue Spotify has had ever since they began their business. The huge issue Spotify is facing is that they are just not profitable. In the 12 years of business Spotify has had it has garnished a huge listener base. Last, year it posted an operating loss of $461 million. Plain and simply all the money Spotify should be making is going to the record labels
    The idea Spotify has come up with to remedy this issue is one many have toyed with and advised for Spotify to do. Unlike Spotify’s biggest contender Apple Music, Spotify only has one platform to make its money on which is music. Apple however has every choice you could think of from movies to mobile games. This spread of wealth allows Apple Music to charge less and pay more to the artist they are streaming. Spotify pays him around $0.00437 per stream. Apple Music pays around $0.00735. Though this may seem a small difference at first glance after a million plays on Spotify, musicians in the US should only expect to earn around $3,970. On Apple Music, they’ll earn much more, receiving roughly around $7,830. The popular idea to solve this issue is to cut out record labels. While the article says Spotify wants to lean towards lower profile artist the only real way to make up the money lost is to go after big tiered artist. Many will agree record labels are something of the past. Record Labels were created to connect the artist’s music to fans. Now that CDS and MP3 players have been left in the past, an artist can simply put their music on a streaming service without any need for a middle man. While record labels do bring the artist exposure and links with other artist Spotify could take over that responsibility. Spotify has already begun to bring exposure to new artist by introducing a new music page to showcase lesser known artist.
    Spotify must change the relationship it has with record labels. In order to survive as its own business, it must shift the balance of power to where record labels rely on Spotify to showcase its music. This may remedy the issue brought up of the older music the record labels own.

  21. One of the most captivating results of the internet era to me has been the widespread change in how people consume their music. As physical platforms including vinyls, CDs,mp3 etc. are dying out, streaming has been the number one source of where people listen to their favorite songs. They do not want to pay for it either. The efficiency of streaming as a platform is unmatched: Consumers get access to millions of songs for the price of roughly 15 dollars a month(depending on what streaming service they use), and the shift has already come away from buying music that companies such as iTunes and Rhapsody were “revolutionary” for in the early 2000s. Being a musician myself and someone who has thoroughly enjoyed streaming music, I also find it very interesting how streaming has also changed the relationship between artists, labels, and music companies such as Spotify. The article mentions that Spotify is valuing artists taking the independent route as a means of creating more profit due to easier negotiations, and is trying to use this as a selling point for its potential stock investors. As such, I have noticed a growing trend amongst up-and-coming artists to abandon the music label route, and utilize independent control over the distribution of their music to have more creative control as well as garner profit. Of course, raising the capital to do such is extremely difficult without the funds of a label deal, but I believe Spotify is making a good move in establishing a deal with an artist that could garner both sides profit without the immense legal ramifications of a major record label deal. Of course, the amount made off of streaming platforms pales in comparison to that of actually selling music on iTunes or selling it in physical copies like it was done early this century. However, like any other industry, this signals a change in the market. As streaming becomes the platform of the future, artists will look at the independent route as a way to grow profit for themselves and spread their music globally, and will stray away from big music labels to do it for them. Several large artists, such as Chance the Rapper and Frank Ocean, have distributed platinum records and funded their own tours while being independent, and are glowing examples of how artists and streaming platforms can work together to cut the middle man and enable more creativity in the music industry. In the future, we will see more and more record labels consolidate and die out due to this phenomenon

  22. I Strongly agree with Spotify’s potential game plan in this article. As a constant music listener there are only two streaming platforms that encompass the internet. Apple music and Spotify. Long gone are the days of physical copies in CDs, people are living the age of technology where everything is readably available when you want it. Peter Kafka also knows this and is why he explains Spotify’s stance on the matter. Big record labels are not always the best for certain artists. Many artists are often bound by a contract in which they must follow certain regulations for a specific amount of time. Some labels delay artists music from releasing at certain times and others work their talents to the bone under a strict content schedule. This is why many up and coming artists choose to remain independent so that they have their own freedom to work or do what they want. However, record labels have the funds and power to push copies, schedule events, and get artists noticed which is why they are attractive. Spotify wanting to work with up and coming artists as an alternative to bigger labels is an amazing venture that would benefit both Spotify and the artist. Spotify is already one of the most popular ways to listen to music. I personally use it myself, as well as all my friends. A smaller artist working with Spotify would instantly boost their recognition. Spotify could promote that artist all over their platform if they wanted too. This would allow smaller artists to grow faster and get their face out into the world. Also, instead of the revenue being split between the Spotify and the Label before it goes to the artist means that they receive more cash in their pockets for their efforts. For example, the rap/hip hop industry has become incredibly competitive. The genre has already overtaken rock and roll as the most popular genre of music. With the huge influx with up and coming rappers there are big shoes to fill. Most of them will never be stars the ones that do come out with a breakout debut are quickly sought after by large labels. These labels like the prey on newer artists and their lack of experience and subject them to actions I stated earlier. Not everyone blows up over night and the ones that do are quickly hunted down. With Spotify taking in smaller rappers under their wing the chances of more people’s voices being heard dramatically increases. I believe that this is the future of music that everyone can get behind.

  23. Spotify is a digital music service company that gives a user access to millions of songs that have been released by musicians from all different genres. I am a big music person and a user of all different types of music streaming services. Spotify is going public which is very important for them as it has not made a profit in almost 12 years of existence. Spotify began allowing investors to sell shares on the NYSE with a share price of 165.90 which will put the company’s evaluation at 24 billion. Spotify’s major problem with making profits is the licensing dues they have to pay its music publishers, which uses up a majority of their revenue. The money they make comes from different types of advertising and subscription fees. Spotify pays for licensing every single time a user decides to stream a song which contributes to the thin margins they have. It makes a difference because other streaming services for movies and other media only must pay a one-time fee for content. Therefore, if Spotify’s content costs keep going up because of increased subscriptions, people will keep playing different music where then Spotify will have to pay the music publishers a fee. In order for them to see revenue, they must find another way to pay its publishers or figure out a way they can get a discount on what they pay. I thought because Spotify has millions of users they would generate so much money just off advertisements but I have realized that the advertisements only helps pay for publication fees and not give any profits to the company.
    To keep Spotify afloat the way they make money is all through advertisements and subscribers. According to an article by Quarta, Spotify makes 70% of profits from ads and 30% form is subscriptions. The plans they offer that is most popular is Spotify Premium which is $9.99 a month and gives you access to all the songs they have with no advertisement interruptions. They offer you unlimited skips and allows the user to play any type of music they want. They also offer a $4.99 student monthly subscription for students only. I personally use Apple Music which I have subscribed to the student plan which is $4.99 a month. The reason I use Apple is that I believe it is easier to use and new music arrives quicker to the people I want to hear. They also offer listeners access to their favorite artists’ new material, via its Beats One Radio service. I think Spotify should get more celebrity and artist endorsements to see revenue growth.

  24. I found it very surprising that Spotify has been around for just about 12 years now and that in all of those years it has not once been profitable. This article talks about a little details into how Spotify runs its company and the reasons why it has not been profitable. To start off Spotify is a music streaming platform. They offer both free and premium accounts. Free accounts can use the app essentially like a radio without being able to pick songs or skip them. On top of this free users of Spotify get ads on the account. Premium users pay a subscription fee each month and get access to millions of songs for free at the tip of their fingertip. Premium users can pick what they want to listen to, skip songs they don’t enjoy, and even download songs when they are away from WIFI.
    I believe that Spotify has changed the way music downloads will be forever. In getting with the article it mentions the main reasons Spotify margins have not been good and while they are losing money is because of the contract deals they have to get with the big music labels. Big music labels own a lot of the big artists that Spotify needs to maintain its customers. The article mentions that 87% of the companies streams come from music owned and run by these big music label companies. The article talks about how Spotify is trying to work out deals with these big music companies. Spotify needs these big labels and the big labels need them. People are not buying CD’s and albums as much so a lot of those lost sales from the music labels are being picked up by Spotify.
    Spotify plans on getting some smaller artists who don’t want to use the large record labels work directly for them. They know it would be a bad idea to cut off the record labels seeing as they rely on them so heavily so they are trying to renegotiate with them later on. Because this article is a little on the older side there is more information available now on the topic. For example they have become profitable in certain months since this article. The company is overall very innovative but they do have a problem with their margins. They rely very heavily on the big music labels and I think this will hurt them significantly.

  25. I was surprised to read that Spotify has been around for 12 years and just recently went public in the recent years. I’ve had a Spotify account for about 4 years now. As someone who chooses Spotify over Apple music, I do hope they get their act together. From never being profitable to operating a loss of $461 million and never even turning a profit, which is a complete shame considering all the benefits that Spotify and Spotify premium give you. Spotify provides you with artists who are mainstream and non-mainstream. This is something most users gravitate towards to. Spotify lets you listen to more than 40 million songs, podcasts, etc. for free at normal or high quality. Spotify premium gives you ad-free listening, offline listening, unlimited skips, and mobile streaming. Spotify has also partnered up with Hulu on their premium package and gives you a combo deal when signing up for premium.
    A great marketing strategy for Spotify is for them to team up with big music lables; Interscope, Island Def Jams, Sony Music, Big Machine, etc. In return, Spotify will provide these music labels with billions in revenue. The company is thinking about a “mid-tail” of acts – big enough to have fans but small enough that big labels won’t spend a lot of time pursuing them Spotify relies on the big labels for most of its music. Spotify offers music artists two advantages, a bigger financial cut and ownership of their recordings. These deals however are not exclusive. This means that this leaves artists free to the license their songs to other major streaming companies such as Apple Music, Amazon, and Pandora. Spotify typically pays a record label around 52% of the revenue generated by each stream, or play, of a give song. The label, in turn, pays the artist a royalty of anywhere from 15% to, in some cases, 50% of its cut. By agreeing to a direct licensing deal with Spotify, artists and their representatives are able to keep the whole payout A New Spotify Initiative Makes the Big Record Labels Nervous. This is a nice profitable way for Spotify to improve its margins and turn a profit.

Leave a Reply

Your email address will not be published. Required fields are marked *