Home / Companies / Spotify reports $1 billion revenue, net loss of $80 million in 2013

Spotify, the company that has come to symbolize the growth of streaming music around the world, had more than $1 billion in revenue in 2013. But it has yet to turn a profit.

In its latest financial statements, Spotify reported that it had €747 million in revenue in 2013, or about $1.03 billion, according to the exchange rate at the end of the year. That was up about 74% from 2012, the company, which is privately held, said in filings made public on Tuesday.

Spotify had $80 million in net losses during 2013, down from its $115 million loss in 2012. The company has said that it pays about 70% of its revenue to record companies and music publishers.

By the end of 2013 it had 958 employees, but that number is already obsolete. Last week, Martin Lorentzon, one of Spotify’s two founders, said at a trade conference that its head count had grown to 1,500 and would soon be “up to 2,000 people".

The finances show how quickly streaming music has spread. Started in Sweden in 2008, Spotify arrived in the US three years later and is now available in 58 markets around the world. (Some 32 of those opened in 2013, the company reported.) It makes millions of songs available by subscription—usually at around $10 a month—or free with advertising.

Streaming’s growth has coincided with sharp drops in sales of CDs and downloads around the world, making services like Spotify the music industry’s biggest hope for new revenue. According to the International Federation of the Phonographic Industry, sales of music on physical formats like CDs dropped nearly 12% in 2013, and the 4.3% growth for digital sales that year was driven by a 51% increase in subscription outlets.

More people listen to Spotify free than pay for it: Of its 36 million active users at the end of 2013, the company said, 8 million of them paid. (This month, Daniel Ek, Spotify’s other founder, said it had since grown to 50 million users, including 12.5 million paying subscribers.)

But subscriptions make up most of the company’s revenue. According to its statement, $897 million, or about 91% of its sales, came from subscriptions, and only $90 million from advertising. As a result, the royalty rates it pays to music companies for the free streams are substantially lower than those for the paid ones.

That differential helps illustrate a wave of criticism the company has received lately from artists, most prominently Taylor Swift. This month, Swift removed her entire catalogue from Spotify, apparently because the service would not make her music available only to paying users.

In Spotify’s defence, Ek said that the company had paid a total of $2 billion in music royalties since it began in 2008, and argued that “our free service drives our paid service". But artists and record companies have become increasingly frustrated with the amount of free music being made available to listeners, and as streaming music has grown more popular, it has also attracted a range of outlets that compete for listeners, like Rhapsody, Rdio and Google Play Music.

This month, YouTube, which is owned by Google Inc., also introduced a paid subscription tier for music, and Apple Inc., which this year paid $3 billion for Beats, is expected to reintroduce the Beats Music service next year with changes that could make it a major competitor against Spotify.

Spotify’s future plans, and the possibility of a sale or initial public offering, have been the subject of constant speculation in the music industry. It has raised more than $500 million in investment, and in its most recent round of financing late last year was valued at $4 billion. A company spokesman declined to comment on its plans.

©2014/The New York Times

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