Spotify revenue is growing, along with its losses

Spotify’s steady year-on-year growth continued in 2014, however its operating loss widened.

According to documents filed in Luxemburg by its holding company on Friday evening, the Stockholm-based streaming service reported revenues increased by 45% last year to 1 billion euros (AU$1.41 billion). However, with a reported 1,354 employees – up from 958 at the end of 2013 – and investments in product development and international expansion, Spotify also reported a net loss of AU$248m. That’s up from AU$85m in net losses in 2013.

Spotify’s two-tiered model (free with ads or paid $10 per month subscription) is available in 58 countries, offering 30 million tracks to its users. At the end of 2014 Spotify reported 15 million paying users and 45 million free users, making it the most popular streaming service on the market.

The documents state that 91% of Spotify’s revenue in 2014 came from its 15 million paying subscribers, the other 9% came from advertising on its free tier.

The financial results arrive at the tail-end of a barrage of criticism from top label executives who take issue with its free model. During Spotify’s talks with record labels to renew licensing agreements Universal CEO Lucian Grainge said in March: “Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors.”

Warner Music CEO Stephen Coopersaid in December: “We continue to believe that the long-term sustainability of the “freemium” model is predicated on high levels of conversion from ad-supported “free” to paid subscription. Of course, in order to achieve those levels, the benefits of paid subscriptions must be clearly differentiated from the ad-supported offerings.”

Sony Music chairman and CEODoug Morris said in March: “Basically, I equate ‘free’ with the decline of the music business. Why should anyone pay for anything if they can get it for free? In certain instances, it’s worth a discussion.”

In September last year Spotify CEO Daniel Ek said artists will eventually make a decent living from streaming services: “[…] if there would be 40 million subscribers paying for a service like Spotify, it would be more than anything else in the entire music industry, including iTunes.”

Spotify has toldTMNin the past it will always feature a free model and in November last year –around the time when Taylor Swift pulled her entire catalogue from the service – it revealed it had paid US$2 billion in music royalties since inception in 2008.

With Apple set to relaunch its Beats streaming service in the coming weeks, Spotify is bolstering its offering. Reports emerged on Friday that it is in talks with YouTube creators, digital outlets and traditional media companies to create a streaming video service. Spotify announced a press conference in New York for May 20 (1am May 21 AEST), where it’s rumoured to unveil its web video plans.

Spotify is also said to have raised US$350 million from new investors, as it was valued at US$8 billion.