There’s no real way of knowing because Spotify doesn’t disclose any of the details of the payouts, but here’s the typical math. With a million paying subscribers, the company would likely be able to break even on that stream without making any revenue.
(If you’re curious about how Spotify might be paid, consider this: In 2013, Spotify reported that it made $27 billion in revenue, and it paid a combined $3 billion in “operating expenses” for the next six quarters of 2014. This is the same figure that Pandora had to report that year.)
So, Spotify could lose money on a single sale, or it could make enough money to reinvest and reinvest in further growth. The company seems to believe that the latter is far more promising for its company.
As an illustration, here’s a graph Spotify generated about 3 weeks ago. It shows the number of customers that came to Spotify a week, over a period of about a month (this one looks at a month, not a week, so you can see the monthly spikes). The graph shows how many of those visits, both free and premium, the company brought in.
But there are other graphs Spotify generated last month that give more insight into what the company is making from each new stream. This is a graph of the amount of time users have spent with any given song, as measured by the length of time they spend listening to an artist. This graph uses similar methodology as above, but it takes the average length of time between each stream, instead of the median: Spotify makes significantly more money with an average of 4.5 hours per user, versus the average of around two hours per user, based on this graph.
So, in short, Spotify has been able to make billions of dollars when an average user is spending less than two hours per visit, and not much more than a couple of hours per user. But this makes the argument even stronger that Spotify and similar streaming services don’t benefit from Spotify’s popularity, despite the fact that it’s one of the biggest music companies in the world.
Now, I’ve spoken to music industry insiders for insight on the matter, and there seems to be a consensus that Spotify’s revenue is far outweighed by the amount customers waste through their “subscription” system. In fact, one industry analyst told me, “I don’t know anyone who uses Spotify because they like it.”
However, there is a growing consensus among music industry executives that,
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