Spotify is Finally Profitable

Spotify has been around for 13 years, it has 96 million paid subscribers, and we would think it would be safe to make the assumption that the company is profitable, right? No, well, not until now. As of February 6th, 2019, Spotify is finally making money. But why has it taken this long to become profitable?

Image result for spotify profit
It may seem strange that it has taken so long to become profitable, after all, the company has a net worth of about $25 billion, but there are several reasons why they haven't created a profit.

First of all, music costs a lot of money! Spotify has to pay billions of dollars to get music rights and that money is also tied to how many times it is played on Spotify. So, the more popular a song is, the more it costs.

Next, Spotify is being forced to keep their membership prices low in order to compete with their competition: that includes Apple Music or YouTube Music. They have all found the equilibrium point, $9.99 per month, and if Spotify were to raise the price, demand would decrease for Spotify and consumers would go somewhere else for their music.

Overall, high costs and competition is keeping Spotify locked in its position and it seems that although they have a profit right now, that profit is expected to disappear soon. However this is not an unseen phenomenon, many other big companies are not profitable either. The list includes Twitter, Snapchat, Uber, Sprint, and Yelp. So, trying to figure out how to make a profit even as a huge company seems to be an important task for many companies as they try to balance big costs with subscription and ad revenues.


Soures:
https://www.theverge.com/2019/2/6/18214331/spotify-earnings-financial-announcement-profits-music-streaming-podcast
https://www.fool.com/investing/2019/03/09/why-did-it-take-so-long-for-spotify-to-turn-a-prof.aspx
https://www.msn.com/en-in/money/companies/the-worlds-most-successful-companies-that-hardly-make-any-profit/ss-BBBtwbK#image=20

Image:
https://www.musicbusinessworldwide.com/spotify-just-turned-the-first-net-profit-in-its-history-and-its-not-particularly-happy-about-it/

Comments

  1. AnonymousMarch 10, 2019 at 1:03 PM

    This was a really interesting post and the deep dive into how business models on the internet are still not entirely figured out. After doing some research, it is clear that the issues that Napster had are also happening to Spotify. The music industry believes that Spotify is underpaying them for the music on the site and have been suing them in response. Furthermore, unlike other companies in the streaming sphere, Spotify has no other form of revenue to fall back on like Apple and Amazon. However, Spotify can't raise their prices because there are so many other sites that are in competition, and as such, it has no way to try to increase its profits. It seems like while Napster has been shut down, the problems that plagued the site and the way it shaked up the industry are issues that continue to today.

    Source : https://www.cnbc.com/2018/02/28/spotify-ipo-business-model-flaws.html

    ReplyDelete
  2. AnonymousMarch 10, 2019 at 8:09 PM

    Extremely interesting post Naomi! I had no idea Spotify wasn't making money until now as they have so many subscribers. I think part of the reason is that you can use it for free and just listen to some ads which isn't that bad and some people feel that listening to the ads isn't bad enough to pay for Spotify. I think a way they could've made more money is to have their ads be for other companies because majority of their ads are for premium which makes sense, but I wonder if they could make more money by having other companies ads.

    ReplyDelete
  3. AnonymousMarch 21, 2019 at 5:54 PM

    Very interesting to see them finally tip over the edge! Amazon took over 10 years to make any profit, and almost 18 years to make a consistent profit every quarter. I wonder if companies that follow this business model will continue to take a shorter amount of time to hit the breakeven point, or fall under and dissolve as a company. If this interval becomes shorter over time, I could see it changing the economy from the perspective of investors not taking as many risks since they find out more quickly whether or not a company's business plan will be realized and turn to profit.

    https://www.wsj.com/articles/amazon-continues-profit-streak-1532635804
    https://www.investopedia.com/stock-analysis/031414/amazon-never-makes-money-no-one-cares-amzn-aapl-wag-azo.aspx

    ReplyDelete

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