March 28, 2024

Spotify Losses Grow, Despite Successful Expansion

After five years, the streaming music service Spotify has established itself as a financial force in the music industry, with more than $500 million in revenue last year. Yet its losses have also grown as the company expands around the world and tries to attract paying customers.

The company, which introduced its service in Sweden in 2008 and came the United States two years ago, had about $578 million in revenue during 2012. That’s an increase of 128 percent from 2011, according to filings for Spotify’s holding company in Luxembourg, released this week. But the company, which has been valued at $3 billion by investors, has yet to turn a profit. Last year it lost $78 million, up from $60 million the year before.

Spotify offers streams of millions of songs free and through subscriptions costing around $10 a month, which eliminate ads and offer other features not available to users who don’t pay. The service is now in 28 markets around the world, and in March the company said it had 24 million active users, a quarter of them paying customers.

The company’s finances highlight the music industry’s continuing struggle to reinvent itself in the digital age. Download sales fell for the first half of 2013, according to a recent report by Nielsen SoundScan, but streaming is on the rise. Services like Spotify and YouTube have become such a part of the mainstream of the business that their numbers are now incorporated into Billboard’s chart rankings.

As the most prominent streaming service of its kind, Spotify has become both a symbol of the industry’s hopes and a target for those who do not believe it pays musicians enough in royalties. This month Thom Yorke of Radiohead and his longtime producer, Nigel Godrich, set off the latest debate over streaming compensation when they removed some of their albums from Spotify, saying that its payment structure hurt new artists.

Spotify pays a fraction of a cent every time a song is played, and these royalties are by far the company’s largest expense. According to the filing, Spotify’s “cost of sales,” which includes royalties and other unspecified expenses, was $482 million, or about 83 percent of its revenue. That is an improvement over 2011, when these costs were almost 98 percent of revenue, But as Spotify grows, its other costs, like marketing and payroll, have ballooned as well.

Spotify executives have said that about 70 percent of its revenue goes to pay licensing fees, which are negotiated with record companies. To reassure artists, the company has also repeatedly said that by the end of 2013 it expects to have paid out a total of $1 billion in royalties.

While Spotify has grown quickly, it remains a matter of contention in the music industry whether the company is growing fast enough, and whether the “freemium” model can ever be a viable replacement for lost CD and download sales. Last year, global recorded music sales were $16.5 billion in wholesale value, according to the International Federation of the Phonographic Industry, a trade group. That was up 0.2 percent from the year before — a gain that was celebrated throughout the music industry — but down more than 40 percent from its peak in 1999.

Article source: http://www.nytimes.com/2013/08/01/business/media/spotify-losses-grow-despite-successful-expansion.html?partner=rss&emc=rss

Media Decoder Blog: For Music Industry, a Story of Two Googles

When it comes to the music industry, there are two Googles. And the difference between them leads to a complicated and fraught relationship.

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One Google is represented by its suite of entertainment media services like YouTube and Google Play, which have licensing agreements with the major labels and music publishers, along with movie studios and other media companies. That side is slowly becoming integrated into the fabric of the entertainment industry, through deals like the one announced by Billboard magazine this week that it would start incorporating YouTube play counts into its chart formulas.

The other side of Google is its mighty search engine, the road map to the Internet, which people use to find content of all kinds — some of it preferred by the entertainment industry, but a great deal of it not. This is the side of Google that has the most frequent and public fights with the entertainment industry (though, to be sure, media companies have had no shortage of conflict with YouTube over the years).

The latest incarnation of Big Media vs. Google search is a report issued on Thursday by the Recording Industry Association of America, or R.I.A.A., accusing Google of failing to make good on its own promises to punish pirate Web sites. In August, Google said it would take into account notices of copyright violation — of which the music industry files thousands each week — in determining a site’s search rank. The implication was that infringing sites would fall into obscurity and consumers would “find legitimate, quality sources of content more easily,” as Amit Singhal, a senior Google executive, wrote in a company blog post at the time.

But the recording industry association, which is controlled by the major record companies, said that after testing Google’s searches, it still found plenty of infringing sites. “Six months later, we have found no evidence that Google’s policy has had a demonstrable impact on demoting sites with large amounts of piracy,” the report said.

At one point in the 15-page report, for example, the R.I.A.A. says that for many popular music searches, sites for which Google had received more than 1,000 copyright complaints were “almost eight times more likely to appear in the top 10 search results than a well-known, authorized music download site.” The report also shows, however, that sites for which Google has received more than 10,000 copyright removal requests appear less frequently than those which have received more than 1,000.

In response to the report, a Google spokesman said in a statement: “We have invested heavily in copyright tools for content owners and process takedown notices faster than ever. In the last month we received more than 14 million copyright removal requests for Google Search, quickly removing more than 97 percent from search results. In addition, Google’s growing partnerships and distribution deals with the content industry benefit both creators and users, and generate hundreds of millions of dollars for the industry each year.”

The second part of that statement is where the two sides of Google collide, at least as far as the music industry is concerned. At the same time that the record labels are accusing Google of failing to deal with piracy, Google is also eagerly pursuing licensing deals to use and sell the labels’ music. Those deals frequently need to be updated to keep up with industry trends, an area in which Google has lagged behind competitors. It introduced a download store only in 2011, for example, and a licensed “locker” service — a way to store music and other files online — late last year, well after Apple and Amazon had done the same.

There are many reasons why licensing negotiations between technology and media companies take a long time — just ask Spotify, which took nearly two years to enter the American market. But as long as the search side of Google causes friction with the music industry, its other side — the one that is trying to compete with Apple, Amazon and every other digital music service out there — will face some rough patches.


Ben Sisario writes about the music industry. Follow @sisario on Twitter.

Article source: http://mediadecoder.blogs.nytimes.com/2013/02/21/for-music-industry-a-story-of-two-googles/?partner=rss&emc=rss