6 things we learned from Spotify’s 2015 financial report

Eight-year-old Swedish music streaming platform has released its annual earnings report. Submitted by Luxembourg-based holding company Spotify Technologies, the regulatory filing calls Spotify "the second largest revenue source to the music industry, both globally and the US” - and it has good reason to too.

Below are TMN’s six takeaways from Spotify’s 2015 annual filing: 

Spotify’s revenue grew by 80%

The music streaming service generated an impressive €1.95bn (A$3.92bn) in revenues last year. Leading the global boom of online music, Spotify said its revenue jumped by 80%. In 2014 revenues jumped by 45%, and 75% in 2013.
 

Spotify’s pay-outs to rights holders are up 85%

Falling under the report’s category of ‘royalty, distribution and other costs’, Spotify’s payments to the music industry reached €1.63bn (A$3.27bn) in 2015 – an increase of 85% on 2014’s figures.

Spotify paid the music industry 84% of its revenues in 2015

As the label sector and artists alike continue to speak out against streaming services over unfair compensation and blast Spotify in particular for its stronghold on the free tier, the platform is already giving the bulk of its revenue to the music report.

MBW points out that 84% of total 2015 revenues went to either direct payments or the cost of tracking and making those payments.

Spotify, along with most streaming services, is currently in negotiations with the major labels who may want to change its current fee structure and even push for up-front funds. But with 84% of its income going straight into rightsholders pockets, it’s difficult to visualise them paying even more.

Consumers are moving to the paid-tier

In 2015, subscription revenues grew 78% to €1.74bn (A$3.41bn) while ad revenue almost doubled with an increase of 98% to €195.8m (A$393.20m).

89.9% of the €1.74bn came from paid subscriptions and the remainder from advertising.

Spotify’s paying subscribers make up a third of its customers

Back in March Spotify founder Daniel Ek said Spotify had reached 30 million paying subscribers.

We have 30 million @Spotify subscribers, but none of them are in Cuba ... yet. So cool to see Cuba opening up! https://t.co/nZa67f0l8U

— Daniel Ek (@eldsjal) March 21, 2016

However, officially, Spotify hadn’t announced its official active user number since last June, when it reported it had reached 75 million active users, of which 20 million were paying subscribers. 

Announced in the regulatory filing, the streaming service now has more than 25 million paying users worldwide, making its paid tier account for around a third of its subscribers. As CFO points out, the number of paying subscribers is about 41% of all paying audio music subscribers worldwide.

Spotify now has 89 million active monthly users, up from 60 million in 2014, and it is still far ahead of its competitors. Newcomer Apple Music has 13 million subscribers and unlike Spotify, has no free tier. Deezer is available in over 180 countries with 6.3 million subscribers and 16 million monthly active users. Meanwhile, Jay-Z’s paid-tier only platform Tidal has hit the 3 million subscribers mark – and 45% of them had opted for the higher $19.95 hi-fi rate.

Spotify’s losses were higher than ever, but that’s good news

Spotify managed to limit its net losses to €173.1m (A$347.62m) in 2015. At 6.7%, it’s a painful number, but it’s only because its revenue increased at an even faster rate.

It could be said Spotify had its best year yet compared to its ballooning 289% loss in 2014, when its revenue was only up 45% (2015’s revenue was up 80%). The results come at an opportune time as the streaming giant prepares for an IPO in the next few years.