Is Spotify's Business Model 'Broken'?

Broken?

In mid-SEPTEMBER (NET NEWS 9/13), ALL ACCESS reported SPOTIFY was close to completing a new financing round for nearly $400 million, and a report from CNET says the money injection is sorely needed. "SPOTIFY's financial performance in 2011 was abysmal," writes CNET, "As revenue increased 151% from 2010, the on-demand streaming music service saw losses widen 60% for the same period."

The report cites data from PRIVCO, a company that sells data on non-publicly traded companies.

PRIVCO posted, "Popular online music service SPOTIFY's financials show that the bigger the company gets, the bigger its losses. PRIVCO has exclusively obtained privately-held SPOTIFY's just-closed full year financials, and while SPOTIFY's revenue growth is impressive, its overall financial results are alarming."

The PRIVCO data shows, "virtually every new dollar of revenue went directly to music companies as royalty payments, evidencing the fact that the more members SPOTIFY adds, the more money the company loses. This is a clear indication that the online licensing fee/royalty model is increasingly restricting SPOTIFY's ability to generate sustainable margins using its freemium model."

PRIVCO Founder/CEO SAM HAMADEH said, "SPOTIFY's 2011 results indicate that drastic changes must be be made quickly to its business model in order to generate growth while actually improving operating margins so that break-even, let alone profitability, is somewhere, anywhere, on the horizon. Either the online music royalty payment model to artists and music companies needs to change, which is highly unlikely in the near term given that digital royalties are record companies only growing revenue stream, or SPOTIFY needs to ASAP introduce a tiered subscription system, as opposed to its current flat monthly fee model, which is clearly a broken business model.

Spotify Comes To Samsung TVs

In other SPOTIFY news, THE WALL STREET JOURNAL reports SAMSUNG ELECTRONICS has partnered with SPOTIFY to allow direct streaming of music from SAMSUNG television sets.

Users will need a paid premium subscription membership to access SPOTIFY through SAMSUNG TVs.

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