Giles Turner and Lucas Shaw, reporting for Bloomberg:
Spotify Ltd. lost 539 million euros ($601 million) last year -- its biggest loss yet -- even as it added tens of million of customers, underscoring how difficult it will be for the owner of world’s largest paid streaming service to turn a profit.
Sales jumped 52 percent to 2.93 billion euros in 2016, but the net loss more than doubled, according to documents filed Wednesday in Luxembourg. Spotify also acknowledged an accounting error that understated losses in previous years.
Spotify has grown from 20 million subscribers to 50 million in less than two years, and now has more than 140 million people using the service between the free and paid options. The growth of Spotify has lifted sales across the entire music industry, reversing years of decline due to piracy and the transition from CDs to iTunes.
There is no denying that streaming music is the way of the future. Even hardcore music nuts (hello) have been making the switch from their treasured lossless iTunes library to services like Apple Music and Spotify. According to Nielsen's year-end music report, streaming saw a 76% increased in 2016, with 421 billion streams listened to. Streaming accounted for 38% of total audio consumption according to Nielsen, making it the most consumed media in music listening.
And yet, with all this record growth in streaming, Spotify continues to bleed revenue like a sieve. This is mostly due to the amount of money Spotify has to pay music publishers for rights to songs, and they are working on that:
Spotify recently signed two new deals it says will help improve its future profit margins, licensing music from Universal Music Group, the world’s largest record label, and Merlin Network Group, which represents a consortium of independent labels. Spotify will pay a smaller share of its revenue to those partners if it meets certain targets. In exchange, the labels got more flexibility in how their songs are distributed on Spotify, including the ability to withhold new music from free users.
Streaming music is not going away anytime soon. People are showing a willingness to pay for a music service for the first time since the iPod made its way on the scene. The big question is, which of these streaming services can strike the right deals with publishers to actually start turning a profit.