Apple Music rival Spotify on verge of turning a profit, board member says

AppleInsider

Spotify, the world's biggest on-demand music service, could finally turn a profit in 2017, one of its board members said on Thursday.

"Up until now, I think it's been growth, growth growth," Par-Jorgen Parson told Reuters. Parson is a general partner with venture capital firm Northzone, and one of Spotify's first investors. Asked whether Spotify could turn a profit next year, he said it was "absolutely" the case.

Spotify now has a presence in 60 markets, and over 40 million paid subscribers, plus an even larger contingent of people listening on its free ad-based tier. To date though it has posted a loss in every quarter, pumping money into expansion and/or the music licenses it needs to offer content. The company doesn't generate much money from ad-based listeners, and regularly encourages them to upgrade.

While Apple Music has far fewer subscribers -- somewhere north of 17 million in total -- it's thought to be doing well financially. Even if it weren't, Apple isn't dependent on its success, and is likely using the service as a way of keeping people attached to its hardware and software platforms.

Apple is rumored to be considering a temporary 20 percent price cut on its individual and family subscriptions. If so that could dramatically undercut Spotify, which doesn't have any alternate sources of revenue to fall back on.

maestro64

expansion of what a few more servers, they can not turn a profit on 40 million users, Also licensing usually depends on number of users the more they sign up the more they pay so I am not sure if they total cost per users is going to drop in 2017. I think the VC is hoping they turn a profit otherwise he is not going to make money. He put a lot in and still has not seen a dime. They better hope users do not go elsewhere and the cost to change is very low in this business.

ireland

$1

...time to go public.

linkman

I don't know what Spotify can do at this point to turn a profit. They launched in 2008. 8+ years should have been more than enough time to optimize their mature markets. There's now way their VC's would have allowed a growth-only with negative profit business model for this long.

They can't squeeze out more revenue from their paid subscribers because those customers would flee to the competition. Increasing ad revenue means either forcing extra ad time on the free tier (which would cause many to flee) or get higher payouts from the paid advertisers (good luck with that). There's no way that the content license holders will lower their royalty fees -- most of the industry complains it's too low already. Apparently growing the customer base isn't working for them either.

macxpress

If they have 40 million users and still cannot turn a profit then there's some massive inefficiencies there. Somehow, Apple can have less than half the users yet still turn a profit? I'm betting if Apple cuts its prices on Apple Music it will STILL turn a profit. Someone at Spotify needs to be fired, if not then someone seriously needs to take a look at their financials. 

While Spotify might be a nice service, if it can't turn this around it will lose the battle in the end. VC's will want a return on their investment eventually. They aren't gonna keep pouring money into something that isn't going to make money for them, or makes very little. 

Time to start an exit strategy....

boltsfan17

macxpress said:

If they have 40 million users and still cannot turn a profit then there's some massive inefficiencies there. Somehow, Apple can have less than half the users yet still turn a profit? I'm betting if Apple cuts its prices on Apple Music it will STILL turn a profit. Someone at Spotify needs to be fired, if not then someone seriously needs to take a look at their financials. 

While Spotify might be a nice service, if it can't turn this around it will lose the battle in the end. VC's will want a return on their investment eventually. They aren't gonna keep pouring money into something that isn't going to make money for them, or makes very little. 

Time to start an exit strategy....

I highly doubt Apple is turning a profit on Apple Music. If you look at the royalties paid and number of subscribers, no way they make any money. Spotify has the same problem. All the money they make off paid subscribers basically turns around and goes back out as royalty payments.

slurpy

The beauty is that Apple doesn't need to turn a profit on Apple Music. Breaking even is good enough. It is simply a service that makes their ecosystem more valuable and lucrative to users, promoting stickiness, and encouraging the usage of yet more Apple hardware and software. 

jbdragon

boltsfan17 said:

macxpress said:

If they have 40 million users and still cannot turn a profit then there's some massive inefficiencies there. Somehow, Apple can have less than half the users yet still turn a profit? I'm betting if Apple cuts its prices on Apple Music it will STILL turn a profit. Someone at Spotify needs to be fired, if not then someone seriously needs to take a look at their financials. 

While Spotify might be a nice service, if it can't turn this around it will lose the battle in the end. VC's will want a return on their investment eventually. They aren't gonna keep pouring money into something that isn't going to make money for them, or makes very little. 

Time to start an exit strategy....

I highly doubt Apple is turning a profit on Apple Music. If you look at the royalties paid and number of subscribers, no way they make any money. Spotify has the same problem. All the money they make off paid subscribers basically turns around and goes back out as royalty payments.

I bet Apple is turning a profit.  What is dragging Spotify down is all the free users!!! I'd they cut them off, their usage numbers would greatly setup and their value would go way down.  They're kind of stuck. Every year their user base grows and profits grow, and yet costs grow right along with it.  They actually lose more money each and every year.  How is that going to change on a dime by next year?  My guess is they will lose even more money next year!!!  I think this investor is just wishful thinking in hopes of getting their money back! 

boltsfan17

slurpy said:

The beauty is that Apple doesn't need to turn a profit on Apple Music. Breaking even is good enough. It is simply a service that makes their ecosystem more valuable and lucrative to users, promoting stickiness, and encouraging the usage of yet more Apple hardware and software. 

Very true. Apple is in a way better position than Spotify. Apple can afford to promote artists and pay for things such as music videos. By doing so, Apple is much more attractive for artists to offer exclusive deals. Spotify needs to ditch their free service and offer more services such as videos. With so many providers now in the business of exclusive shows, Spotify should definitively be looking into jumping on that bandwagon. 

michael scrip

Spotify might become profitable (actually making a profit after all their expenses are paid)

But how soon until they pay back the BILLIONS in venture capital money they've taken over the years?

They gotta pay that money back, right?

bitmod

They're kind of stuck. Every year their user base grows and profits grow, and yet costs grow right along with it.  They actually lose more money each and every year.  How is that going to change on a dime by next year?  My guess is they will lose even more money next year!!!  I think this investor is just wishful thinking in hopes of getting their money back! 

Not necessarily.
They may have had big capital costs invested that are now paid off.
Now that the infrastructure and R&D is done, they go into maintenance mode and profitability jumps. Good time to invest.

gmgravytrain

On the verge of turning a profit? They either turn it or they don't. If my pig is on the verge of sprouting wings, does that mean it will fly? I can't take these ridiculous stories. Why don't they just wait until they turn a profit before announcing it? Suppose they end up not turning a profit? That would make that board member just look stupid and the company seem incompetent.

pentae

What’s dragging Spotify down is that Apple makes more profit from Spotify than they do from Apple Music. The 30% mafia tax assures this. It’s anti-competitive and absurd. Apple can happily afford to charge $9.95 a month per user because they don’t have to pay their own fee to themselves. Spotify has to charge $12.95 via Apple or $9.95 via their website which puts them at a disadvantage, and yet users still flock to it because it’s a better service. I feel sympathetic for the CEO of Spotify, but they seem to be doing pretty well despite this large handicap. Apple must be scratching their heads wondering why he is still crushing them.

[Deleted User]

Even if it weren't, Apple isn't dependent on its success, and is likely using the service as a way of keeping people attached to its hardware and software platforms.

The fact they released Apple Music on android doesn't correlate with that statement.

mdriftmeyer

pentae said:

What’s dragging Spotify down is that Apple makes more profit from Spotify than they do from Apple Music. The 30% mafia tax assures this. It’s anti-competitive and absurd. Apple can happily afford to charge $9.95 a month per user because they don’t have to pay their own fee to themselves. Spotify has to charge $12.95 via Apple or $9.95 via their website which puts them at a disadvantage, and yet users still flock to it because it’s a better service. I feel sympathetic for the CEO of Spotify, but they seem to be doing pretty well despite this large handicap. Apple must be scratching their heads wondering why he is still crushing them.

Spotify can build out their own global distributed network servers, or pay Amazon, Google and Apple for their systems. Sorry, but the absurd one is you.

linkman

michael scrip said:

Spotify might become profitable (actually making a profit after all their expenses are paid)

But how soon until they pay back the BILLIONS in venture capital money they've taken over the years?

They gotta pay that money back, right?

If Spotify never makes money and they go bankrupt then how would they pay the investors? Rob some banks? I'm assuming that in bankruptcy proceedings that the VC's end up being creditors in line with everyone else, or worse, have no claim to any payments. If investing in these things were guaranteed then we would have a lot more investors -- being a venture capitalist is very risky.

linkman

pentae said:

What’s dragging Spotify down is that Apple makes more profit from Spotify than they do from Apple Music. The 30% mafia tax assures this. It’s anti-competitive and absurd. Apple can happily afford to charge $9.95 a month per user because they don’t have to pay their own fee to themselves. Spotify has to charge $12.95 via Apple or $9.95 via their website which puts them at a disadvantage, and yet users still flock to it because it’s a better service. I feel sympathetic for the CEO of Spotify, but they seem to be doing pretty well despite this large handicap. Apple must be scratching their heads wondering why he is still crushing them.

So Apple should eliminate the 30% charge for anything that they compete with? Extend this to other services and Microsoft gets a freebie on their Office products because Apple has a similar suite. Spotify was losing money before Apple Music came along. Spotify can also discontinue the in-app subscription method.