'Spotify Hits 10 Million Paid Users. Now Can It Make Money?' Questions Bloomberg
May 22, 2014 at 4:49 AM (PT)
It was just YESTERDAY (NET NEWS 5/21) that we learned that the webcaster SPOTIFY now has 10 million paying subscribers and more than 40 million active users in 56 markets worldwide.
That was the good news. The bad? Perhaps the business model isn't a profitable one, writes BLOOMBERG's BUSINESSWEEK noting SPOTIFY, "has been great at getting people to pay for subscriptions -- and not at all successful at turning a profit.'
The report explains SPOTIFY's, "margins don’t improve as they get larger. If SPOTIFY bought the rights to songs for a flat rate, then every subscriber it adds would mean free money for the company. But that isn’t what it does. Instead, it spends a fixed proportion of its total revenue on royalties. So if SPOTIFY doubles its subscriber base, it doubles the amount of money it pays out. It may be that SPOTIFY will gain some power over the royalties it pays once it has a critical mass of customers, but right now, many people think it can never get ahead of its costs. The worst-case scenario for SPOTIFY isn’t losing to APPLE. It’s discovering that its prize is insolvency."