Spotify is the number one music streaming service with more than 550 million users. In 2008, when the company was founded, Apple was the dominant force in the music download business, through its iTunes platform. And the industry, still reeling from the trauma of rampant internet piracy, was quite happy to have solid ground under its feet again.
The revolutionary idea of Spotify was not only to offer the entire music offer for a monthly fee equivalent to a download album but even for free with restrictions and advertising. The music associations showed no interest.
Steve Jobs on the phone?
Spotify’s co-founder and chief executive Daniel Ek was extremely concerned about headwinds from Apple in the early years. According to a companion at the time, Ek was convinced in 2010 that a caller who said nothing and just breathed into the receiver was none other than Apple boss Steve Jobs himself, a book about Spotify said a few years ago.
It took until 2011 for Spotify to enter the lucrative US market after deals with music companies. In Europe, the service had just seven million users at the end of 2010.
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The free version was a point of conflict from the beginning. The industry feared that offering music for free would devalue it in people’s eyes. Musicians complained that songs that were often streamed only yielded weak amounts of money.
Ek and his managers have repeatedly explained that the free version is primarily a precursor to a premium subscription. As the German financial magazine Capital notes, of Spotify’s 551 million users at mid-year, 220 million were paying customers.
Majority of revenues back to the industry
The perfect conditions for Spotify came with the spread of smartphones and mobile internet flat rates. Streaming now brings in the majority of revenues in the music industry, while downloads and CDs only play a minor role. Apple, which has long relied on its download business, bought Spotify competitor Beats for three billion dollars in 2014. The iPhone company does not offer a free version and its number of users remains a secret.
However, Apple has the advantage that it does not rely on streaming services to make money. With Spotify, it’s the opposite. “And it is structured in such a way that much of the music revenue-around 70 per cent-is passed directly to the industry,” Capital notes.
How much of that money ends up with the artists depends on their contracts with the music companies. For Spotify, at least, this means that all costs have to be paid with less than a third of the revenues.
Sponsorship and exclusive deals
FC Barcelona generated a record €97.6m ($106.2m) in sponsorship revenue from new deals in the 2022-23 season. The biggest deal has just been signed with Spotify, which includes naming rights for the iconic Camp Nou stadium and rights as shirt sponsor.
The Swedish company is also the first partner in the club’s history to sponsor both the men’s and women’s teams at the same time. According to the portal sportcal.com, the multi-year contract is said to have a total value of around 280 million euros.
Daniel Ek wanted to expand the business with new sources of money and started with podcasts. He invested hundreds of millions of dollars in expanding the platform with company acquisitions as well as exclusive deals with celebrities such as Prince Harry and Meghan Markle. However, most exclusive podcasts are unprofitable, the Wall Street Journal recently wrote. Spotify, meanwhile, wants to expand its business with audio books.
Meanwhile, the balance sheet is in the red. In the last quarter alone, the company posted a loss of 302 million euros. Against this backdrop, Spotify followed the price increases of other services, for example in Germany for a single subscription from 9.99 to 10.99 euros.
