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Business News Digital
Spotify confirms 50 million paying users
By Chris Cooke | Published on Friday 3 March 2017
So Spotify now has 50 million paying users. And there’s not much you can do about that. I mean, you could try creating a record that causes instant death on first listen and push it onto the Spotify platform, I suppose. That’s one thing you could do.
Then you could employ the very best music marketers and data crunchers and playlist manipulators to ensure as many Spotify subscribers as possible listen to it. And when that fails you could hack into the Spotify mainframe and sneak the track into everyone’s Discover Weekly list. Then just sit back, adopt an evil smirk, and wait for Monday morning when BOOM, they’re all dead. But that sounds like quite a lot of work.
Spotify, of course, needs considerable scale for its business model to work, given that the majority of its revenues are immediately funnelled to the music industry. And it’s paid for users that matter, freemium basically being a loss leader, hence why most attention is now put on Spotify’s premium subscriber base. Indeed, Spotify hasn’t officially updated its overall audience figure, including those on the freebie option, since last June, when it stood at 100 million. At that point it was stating 30 million on the premium level.
Quite how many paying users Spotify needs to be a profitable business is unclear. For starters, it depends on where the majority of those premium users live, given subscription prices are lower in real terms in emerging markets. It also depends on how many users are on some kind of discount package, directly with Spotify or via a bundle.
It also depends on what the firm’s costs are long-term, of course. Head count at the company continues to rise considerably, though post-IPO that could go into reverse. Meanwhile, negotiations are ongoing with the major record companies over Spotify’s licensing deals and royalty bills moving forward.
Streaming deals are ultimately revenue share arrangements with minimum guarantees on top for the labels and publishers. It’s known that Spotify is trying to get its revenue share commitments to the labels down a little, partly because the big publishers have managed to get their revenue share arrangements up a few percent.
Though, actually, it’s arguably the minimum guarantees that are currently most problematic for Spotify, which wants to keep at least 30% of its revenues, but is often left with a lot less once minimum guarantee commitments have been honoured.
If you could identify just how many paying users Spotify needs, you’d then be faced with the question as to whether or not there are enough people who can be turned on to £10 a month subscription streaming to meet that requirement. The firm continues to add each new ten million users quicker than the previous batch, but the question is will growth rates slow over the next couple of years? You can choose to be optimistic or pessimistic about that, whichever you prefer.
How viable Spotify’s business model is long term is a general concern for the record industry, which is increasingly reliant on its streaming income, the vast majority of which comes from a very small number of services. Though it’s a more pressing concern for Spotify itself, given the initial public offering that really needs to occur next year at the latest. That requires convincing Wall Street types that the business model is indeed sound.
The success of yesterday’s Snapchat IPO on the New York Stock Exchange possibly suggests Wall Street types are still flocking to buzzy tech start-ups whose products they don’t quite understand. Which is possibly good news for Spotify.
Though its challenge might be that – despite the complexities of the licensing deals – the music streaming business is much easier for investors to get their heads around than social apps that are mainly popular with The Kids. Yesterday’s stats brag confirms Spotify’s market-leader status in paid-for music streaming, but does Wall Street have faith in the paid-for music streaming business at large?
Still, 50 million users, woo! Now, what kind of record might cause instant death? I can think of a few that can definitely induce an instant coma.
