Spotify gains listeners but it’s still bleeding cash

Streaming leader Spotify said Monday that its losses deepened last year even as the company topped $2 billion in revenue amid the global boom in online music.

Spotify gains listeners but it's still bleeding cash
Spotify's offices in Stockholm. Photo: Lars Pehrson/SvD/TT

Streaming leader Spotify said Monday that its losses deepened last year even as the company topped $2 billion in revenue amid the global boom in online music.

The Swedish company founded in 2008 has been at the forefront of the music industry’s turn to streaming, which offers unlimited music on demand, yet it has never turned a profit itself.

Luxembourg-based holding company Spotify Technologies, submitting its annual earnings report, said its revenue jumped 80 percent to €1.95 billion ($2.18 billion) in 2015.

The growth rate is significantly stronger than the 45 percent it charted in 2014 and slightly higher than the 74 percent seen in 2013.

“In many ways, it was our best year ever,” the company said in a message to shareholders, describing Spotify as the top driver of growth for the entire music industry.

The company said its revenue from advertisements nearly doubled and that its user base also grew significantly.

Spotify said it had 89 million active monthly users by the end of 2015, up from 60 million a year earlier, of whom some 28 million were paying for subscriptions.

The company’s founder, Daniel Ek, had said in March that Spotify reached 30 million paying subscribers.

But the growth did not erase losses, with Spotify putting a priority on investments at a stage when streaming is increasingly becoming mainstream.

The company’s net losses totaled €173 million, nearly seven percent deeper than a year before.

“We believe our model supports profitability at scale,” the company said.

“We believe that we will generate substantial revenues as our reach expands and that, at scale, our margins will improve,” it added.

“We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach.”

Growing competition

Spotify’s growth is all the more remarkable as last year marked a pause in its international expansion. It resumed its global push this year, adding Indonesia as its 59th country.

But Spotify also faces growing competition.

Tech giant Apple launched its own streaming service last year and rap mogul Jay-Z has spearheaded rival Tidal, adding to a market that also includes French-based Deezer and US-based Rhapsody.

Deezer’s revenue stood at €142 million in 2014, well below Spotify.

The company, which put off a market listing in October, has not released figures for last year.

Apple does not break down its revenue from streaming. Rhapsody, which also operates as Napster, posted $202 million in revenue in 2015.

Spotify has sought to expand its offerings, starting video content and recently began a tie-up in the United States with Starbucks aimed at bringing in new subscribers.

But it has also faced prominent holdouts including Taylor Swift, Adele and Radiohead who have kept some or all of their music off the service, in part due to objections to its free tier.

The soaring growth of subscriptions to Spotify and its rivals led the global music industry to post significant growth for the first time in nearly two decades last year, according to the International Federation of the Phonographic Industry.

But with an accompanying fall in sales of CDs and digital downloads, some players in the music industry wonder whether streaming will offer healthy margins in the long term.

Spotify remains a private company under the control of its founders, Ek and fellow Swede Martin Lorentzon, and has financed its commercial push on its own through investors.

A listed shareholder, Swedish telecom firm Telia, last year made it known that Spotify was valued at $8.2 billion.


Is football next for Spotify’s billionaire CEO? 

The owner of Spotify, Daniel Ek, has offered to buy Premier League club Arsenal amid supporter backlash against their unpopular American owner, Stan Kroenke.

Arsenal play to an empty stadium
Spotify's owner has set his sights on Arsenal. Photo: Adrian Dennis/AFP

Spotify’s billionaire CEO, Daniel Ek, who revolutionised on-demand music listening for millions of people now hopes to bring his business acumen to “the beautiful game”.

The 38-year-old, known for his no-nonsense attitude, has offered to buy Premier League club Arsenal amid supporter backlash against unpopular American owner Stan Kroenke.

Ek co-founded Spotify with Martin Lorentzon in 2006, and the company which made its debut on the New York Stock Exchange in 2018 now has a market capitalisation of $56 billion.

The Swedish billionaire 

Bald, bearded and usually seen in sneakers, T-shirt and a blazer, Ek is known for his reserved style and pragmatism. He’s a shy problem-solver with a creative streak who takes long walks to think things through and prizes collective teamwork over the individual.

Ek got into computer programming as a young child, and was a dollar millionaire by the age of 23 when he sold his online advertising company, Advertigo, in 2006 for a reported $1.25 million.

“But he’s more of a businessman than a tech nerd,” Sven Carlsson, co-author of “The Spotify Play”, told AFP, painting him as a visionary.

“He’s always thinking six months ahead. He’s not into the details. He’s known for having ambitious, lofty goals, with no understanding for how unrealistic they are,” he said.

“He thinks big, and he has patience” to see those projects through to fruition.

Ek was raised in Stockholm’s working-class suburb of Rågsved. His father left the family when Daniel was young.

“He’s always had something to prove… Being left by his dad was a formative experience,” Carlsson said.

Pelle Snickars, co-author of “The Swedish Unicorn: the Story About Spotify”, describes Ek as “quite Swedish in terms of values”.

“We don’t see him on magazine covers alongside celebrities, he’s not hierarchical and does not hesitate to showcase his collaborators,” Snickars told AFP.

With around 9 percent of Spotify’s capital and 37 percent of voting rights, Forbes put Ek’s fortune at an estimated $4.8 billion in April 2021.

“Innovations are never entirely new”

In 2006, Ek and Lorentzon came up with the idea of creating a platform to distribute music online legally, a practice that was dominated by illegal file sharing sites at the time.

The duo experimented with sharing MP3 music files between the hard drives on their computers. In October 2008 Spotify was finally ready to go live after Ek pleaded with music labels to open their catalogues.

“Innovations are never entirely new,” Ek told the Royal Institute of Technology (KTH) in Stockholm during a 2013 visit.

“The success comes from combining things that already exist and trying to solve a problem that one is really involved in,” he added.

Ek reportedly dropped out of the university’s engineering programme to pursue an IT career – though his enrolment at the school has never been proven, Carlsson noted.

He said Ek’s former colleagues nicknamed him “Spice.”

“They thought he always spiced up his stories a little to make them more interesting,” Carlsson said, adding that it wasn’t necessarily a bad thing.

“Storytelling is something Spotify and Daniel Ek have always been good at.”

Football next? 

Ek’s perseverance may have led to the remarkable rise of the start-up, but artists have over the years complained of it paying them too little and cannibalising sales from their albums.

Ek has repeatedly argued that streaming is a better alternative for artists and that “piracy doesn’t pay (them) a penny – nothing, zilch, zero.”

Snickars and co-author Rasmus Fleischer dispute the idea that Spotify was founded to end piracy and force consumers to pay for music.

They claim that neither Ek nor Lorentzon “had any experience with working professionally with music”, but they had a common background from digital advertising.

“They weren’t particularly interested in music…they could have worked on skin products instead,” Snickars told AFP.

Now, Ek is ready to dive into the football arena.

“As a kid growing up, I’ve cheered for Arsenal as long as I can remember. If KSE [Kroenke Sports Enterprises] would like to sell Arsenal I’d be happy to throw my hat in the ring,” Ek wrote on Twitter on April 23.

Kroenke has however insisted Arsenal is not for sale, despite growing supporter unrest at the American billionaire’s ownership of the club, whose last Premier League title came in 2003/04.

Article by AFP’s Pia Ohlin.