Spotify revenues up, losses down in first half of 2017

Spotify revenues topped €1.9 billion (A$2.84 billion) in the first six months of 2017 and set to reach €4.1 billion ($$6.14 billion) for the whole of 2017.

That would represent a 40% year-on-year gain for the Swedish streaming service, fuelled by paid subscriber numbers.

Estimated losses for the first half of 2017 put at between €100 million ($149. 8 million) and €200 million ($299.6 million) – which considering its total loss for the whole of 2016 was €556.7 million, ($834 million) could be seen as a positive.

Spotify has not officially responded to these figures. They were privately circulated to private investors but leaked byThe Information.

The figures put Spotify in a good position as it heads for an IPO. It is currently valued at US$16 billion ($20.2 billion) –up from $13 billion ($16.4 billion) earlier in the year – and expected to rise to $20 billion ($25.3 billion) when the company goes public.

At this early stage, investors are trusting CEO Daniel Ek’s strategy that its priority is growth and not profits.

According to the leaked data, it burned through US$1 billion ($1.2 billion) in just three years, and amounts to $350 million ($443.6 million) in 2017 alone

Licensing from record companies is massive, including a $2.34 billion ($2.98 billion) two-year advance.

But it has struck lower royalty fees with Sony Music Entertainment and Universal Music, as well as a deal with indie digital rights body Merlin.

Spotify is also paying an $2.77 million ($3.53 million) a month rent for its swish US offices at the World Trade Center in New York as part of a 17-year lease.

Last year, Bloomberg commented that Spotify would have to get up to 60 million paying subscribers before it enters profit.

Spotify announced it reached the 60 million level in July 2017, which means it adds 10 million new subscribers since March. Payers are up 40% from last year.

It also said it now has 140 million active users, as of June.

Some in the music industry suggest that the IPO should give Spotify the opportunity to base its model on Netflix’s, which had gross margins of 30% in 2016, compared to Spotify’s 15% for the 12 months of 2016 and 22% in the first six months of this year.

Both work within industries which are increasingly consumed via streaming.

But Netflix is a profitable business. In 2016 it generated net income of $186.7 million ($236.6 million) while Spotify’s net lossed almost $600 million ($760.4 million) in the same period, and $258 million ($327 million) the year before.

One thought is that in the same way that Netflix is increasingly into original content which it sells, Spotify too should become a record label, creating and developing its own acts.

Others warn that the psychology of consumers towards music and video is different, and that Spotify would be hit with extra expenses and competition if it followed the Netflix path.