Spotify had a £16.66m loss in 2009 – a rumoured US launch is now imperative

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Music blog Musically has jumped on the new accounts of Spotify’s UK Limited company to reveal some interesting figures, to say the least. The accounts also reveal that at the end of 2009, Spotify’s parent company Spotify Technology SA was negotiating further funding.

The most interesting stat, to me at least is that Spotify started 2009 with around one million users and ended with seven million users across Europe, of whom over 250,000 were paid-up subscribers. That is a sevenfold increase.

The latest official Spotify numbers , says the company, is that they had over 10 million registered users (in October this year) and over 500,000 subscribers across Europe (a figure revealed in June).

But assuming the growth rate in the second year was slower, let’s call it a two to threefold increase, then Spotify could well be heading toward 15 million users by the end of the year, and 750,000 to 1 million paying subscribers. Let’s hope for their sake they are.

A company spokes person commented on the 2009 figures: “2009 saw us focus on establishing a new and innovative music service and bringing it to millions of people across Europe. The groundwork laid in our launch year has been crucial to the significant achievements made in 2010. Further strengthening and expansion of the service remains our top priority.”

Since October 2008, it has paid more than €40 million to rightsholders, with €30 million of those payments coming in the first eight months of 2010.

In other words, although Spotify’s startup costs have been hefty, it’s user-base is giving it traction. The jury is out the door on how it can maintain that, but as investor Sean Parker says, once users have built playlists, collected albums and used the mobile app “we’ve got you by the balls.” So it’s just waiting for that grip to tighten, as it were.

Lastly, we hear from reliable sources that Spotify is prepping a launch in the U.S. soon, despite a year’s delay. This could either happen in late December or early in the New Year. Watch this space, I guess.

Here are highlights of the 2009 financial accounts for Spotify Limited, its UK-headquartered arm that is really the guts of the operations:

• The operating loss was £16.4 million for 2009 as a whole
• Net loss after taxation was £16.66 million

• Revenues for 2009 were £11.32 million
• Cost of sales was £18.82 million
• Distribution was £608,711
• Administrative expenses were £8.29 million

Spotify’s revenue by category was:

• £4.51 million from sales of advertisements in 2009, just under 40% of revenue
• £6.81 million from subscriptions, just over 60% of revenue

• At the end of 2009 it had 23 employees
• Staff costs were £1.17 million

It ended 2009 with:

• Just over £2 million in cash plus £12.1 million of assets in trade and other receivables
• £21.47 million of liabilities in the form of trade and other payables.

  • Dan

    I love Spotify. Since paying for it I have stopped using iTunes for music. iTunes is only used to back up my iPhone and download podcasts.

  • Spotify’s £16.66m Loss In 2009 – A Rumoured U.S. Launch Is Now Imperative | JetLib News

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  • T

    i use grooveshark since they started and even on my iphone. if you jailbreak your iphone you can install their application and it works like a charm. besides other nice features like more tabs in safari and quick reply text messages etc.

    • MrShifter

      Most of the music played on Grooveshark makes no money for rights holders cos they are Not Licensed! It is really hard for legal services to make money – thats why they need your support.

  • Greg

    Are you familiar with the concept that growing into a new territory increases rather than decreases cash needs? Customer acquisition, local infrastructure, etc., etc. If you want to stop losing money, you concentrate on getting cash flow out of your existing business. This headline is asinine.

    Not to say that Spotify won’t expand, but please actually put some thought into the article.

  • Pierre Col - CogniK

    IMHO, there is no way to make profits for Spotify if
    – 1 over 20 users pays for the service
    – 100% of the music heard by 100% of the users has to be paid to the rightholders with actual fees.

    The size of the market does not change anything if the 5% freemium rate does not rapidly become at least 30%, or if the fees paid to the rightholders are not decreasing dramatically.

    • John Campbell

      The business model problem is likely amplified because the early adopters are the most likely to convert to paying accounts. As user base grows, the freemium-to-paid conversion rate is likely to decrease.

      That said, I really hope VCs pump tons of money into this company so I can get free music while the party lasts.

      • Unlasheddeer

        win! :)

    • Mike

      Also, a lot of the subscriptions come from deals (Eg. getting a new mobile subscription) which means that they might not get renewed after that 1 year.

    • Yngve

      I have used this argument several times. The independent Norwegian artist Ugress is already making more profit on Spotify than iTunes. This even though about 20% of his market is in the US, where Spotify isn’t available. In my opinion it is ignorant to state that there isn’t money to be made on streaming. In the end, artists weren’t left off with all that much revenue from CD sales neither. And comparing with radio the revenue is already at least an order of magnitude higher.

  • Pete

    Both Greg and Pierre above here are spot on. There’s no point in increasing the user base if you’re earnings per users are too low.

    • Erik

      And that is why there haven’t been an US launch.

  • Cookies & Java

    What sources have you used for evaluating their finances? And also could you detail why you believe the UK financial record represents the status for their business as a whole?

    I can’t help but feel you’re speculating around their UK Ltd companies house figures. I think it’s fair to say that given UK corporation tax rates and Spotify’s presence in other countries you would be unlikely to find much profit there.

    • Cookies & Java

      Sorry missed the link at the top!

  • LG

    2009 was first real year of international operation. If you think they should be clearing profit within year one you need to go back to business school.

    I suspect they are going to clear a nice profit in 2010 which is almost unheard of in start-ups like this (esp media).

    The big unknown is what iTunes and Google are going to do about it but Spotify is still a major contender whatever they do.

    • David Knowles

      Spotify will only be allowed to stay on the scene by the record labels if garners a big enough audience before they renegotiate the royalties an in a state where it would be fools hardy for the record companies to shut them down, that why a North American launch is nessecity for Spotify survival in the long term.

      Spotify is also the only service proven to beat piracy. An Apple is so scared of the service that they have lobbying to try an block the service from entering the US markets, if the 15 million users hold true, in less than 2 years you can see why Apple is running scared.
      The service also make Apple looks obsolete.

  • Charles

    Revenues for 2009 were £11.32 million
    Cost of sales was £18.82 million

    That’s the interesting part. I understand that Spotify’s business philosophy is that you get them hooked by the free part, and eventually they’ll pay for it. But still. If your Gross Margin is already 7 million in the hole before any other expenses, that’s a real bad sign.

    Of course what exactly are their CoS. If its just royalties then the problem is even bigger.

  • JC

    I don’t see Spotify in the game within 3 years.

    Their proposition is not compelling enough. Ad free music is great, unless you have to pay for it. Grooveshark already does it for free – plus no need to download client software. Furthermore, when iTunes starts to offer a streaming, there won’t be room for many other players.

    Artists are poorly compensated by Spotify. But I guess that’s the case for all streaming music providers. Ultimately the music industry cannot continue to sanction an “all you can eat” model since total revenues will decline further.

    Music just doesn’t pay any more. There needs to be an industry wide effort to re-engineer revenue, distribution and compensation models.

    – how has there not been an album selling more than 20m copies worldwide since 2004?

    Don’t tell me it’s piracy! It’s industry complacency, ignorance and arrogance.

    – how does a computer game (black ops) make $650m in 5 days?

    Platform and game developers got their act together – that’s how! Labels, distributors and artists need to do the same.

    The industry is allowing itself to be sliced, diced, given away for free (NOKIA express music anyone?), established artists screwed, new talent ignored. There will not be an industry in 10 years unless they get off their lazy fat asses and change.

    Who cares about Spotify? All they are doing is raping a dead carcass…

    • Bart

      Don’t insult Spotify by comparing it to Grooveshark.

    • C. Sunday

      I’m not a big fan of Spotify, but MAN! that was harsh.

      I believe the fact of the matter is, music no longer means much to people anymore — It’s just a past time activity; AND fans are bored with the same old artists, and musicians that sing and produce the same old songs.

      Spotify hasn’t really been able to convince the general public on how they’re any different from rdio, rhapsody, GrooveShark etc. For example, If Spotify differentiated itself from, let’s say grooveshark, by offering music from independent or not so popular artists, they could reduce their licensing costs, and perhaps make a lasting impression.

      Overall, I just think there is too much competition in this space, and almost all of them are proposing/selling the same music that users can obtain anywhere…FOR FREE.

    • MrShifter

      Grooveshark is not a fully licensed service. It amazes me that so many people dont know this.
      Only EMI and Merlin have licensed them, both in return for stopping legal action. So most music played on Grooveshark pays NOTHING to rights holders. And they still sell advertising…and subscriptions to consumers.

      Say it loud please…..Grooveshark is predominantly a pirate.

  • P

    Spotify has stopped me, and almost all other Swedish university students, from pirating music, so that gotta account for something.

    The continuation of the service really depends on if they can get enough users to pay for premium (I do as I cannot stand ads) or get enough advertisers.

    The Spotifty app is also a godsend. I can sync music over wifi, not having to bother manually transfering the songs I want to my phone.

    • Dan

      Spotify stopped me from pirating music too.
      What would you do, if you ware a label ?
      You allow user X that’s not paying for music to listen for free and bomb him with ads to make some money OR you spend hundreds of thousands on lawyers to shut down sites, and anyways, in the end X will download his music from a site you still didn’t manage to close, that’s running ads(but not yours).

    • Alexander

      Same here; Spotify is the first service that is more convenient than pirating (I pay for the service, despite being a poor student).

      • franck

        Same here, I haven’t downloaded any music in months now that spotify is here.

        The experience is just truly amazing, it’s fast, interface is perfect. It just misses a bit of local content (ie french for me)

  • Paul Cockerton


    A small comment re album sales.

    Online and mobile purchasing of music has meant its now much easier to purchase singles. Many more customers now browse and buy the tracks they want, rather than albums. This could account for no album sales >20m since 2004.

    If you look at singles figures, there’s plenty of evidence to suggest that consumption is still high.

    I gotta feeling… Don’t matter….Hips don’t lie. ;)

  • Marc

    Spotifyh has changed my musical life. It’s simply e smartest app that’s come out in the last ten years. It makes iTunes prehistoric and clumsy and expensive. The best thing about spottily is the way you can share you playlists with friends via Facebook connect. This simple feature makes discovering new music insanely easy and personal at the same time. Also the drag and drop feature means you can drop a track you like to friends (with a little note) in a second. How simple and effortless is that? If I want to play my music at a mates house, I just log into my account. It’s just hands down the best thing out there. I heart Spotify.

    • Todd Bida

      AGREED: Spotify has changed my musical life. It’s simply the best app that’s come out since Google launched. It makes iTunes prehistoric, clumsy, and expensive.

  • Brian D

    Youtube is still the easiest place to get pirate music… or is it legal ? I can’t remember… but that’s youtubes problem.

    • JohannQ

      I would say that depends on your jurisdiction. In the Netherlands, where I currently live, you have a right for a private copy. In Germany you could get busted – but you can’t listen to most music on youtube there anyways, because our RIAA-equivalent GEMA has intervened to do that…

  • William Zanelli

    I love Spotify, and I agree 110% from one of the above commenters who said its stopped him from pirating music!

    I can’t believe all the Americans are trashing Spotify, is it because it wasn;t made across the pond?

    Use it before you comment on it!

  • JC

    @Paul Cockerton – yes I agree, single sales are high in relation to album sales due to listening habits. However “hips don’t lie” is the only single in the 2000’s to sell more than >10m. The other singles to have sold ~10m were from 1942, 1967, 1966 & 1971! You have to go back to 1997 to find a single that sold more than “hips don’t lie”.

    Overall consumption is way down. Last year it was 7% down on the previous. Look here for the last 10 years sales figures:

    And to everyone who likes Spotify, I have to agree it’s a great technology. But then so is bittorrent. Both are killing the music industry and will eventually preside over a very large, but static catalog of artists who used to earn their living in the music industry.

  • P

    @JC So you are saying that Spotify, whom does pay an not insignificant amount of money to rightholders is killing the music industry? Compared to Bittorrent there are 40 milion reasons why Spotifty is preferable.

    40% of Spotifty’s revenue does come from the ads in the free version. I can imagine this will increase as the number of users and knowledge about the platform grows.

    One must also remember that you can actually buy Mp3s inside Spotify. I don’t know how many that actually uses this feature but it is there.

    Spotify is currently one of the biggest income sources for artists in Sweden ( Swedish article). Spotify killing the industry? Not really.

    • Bilawal Hameed

      I highly doubt they’re earning much from the freemium model, simply because it can be avoided (simply close the Spotify app when an ad comes on, and load up spotify again.. takes 2 secs) so because of this ineffective technique, they’ve killed off their concept.

      They put too many ads, which mean I would rather download and keep them forever. It’s not that isn’t affordable, it’s that we are so use to downloading music for free.

      I say, unfortunately, Spotify could be hitting the deadpool soon.

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  • FU

    Spotify sucks! They pay artists very little money.

    Spotify is just a VC play looking to be sold.

  • Azeem

    Wonder how Omnifone’s revenues vs costs stack up against spotify?

    the indirect model would take longer to turn on, but when it would, acquisiton costs shd be lower…

  • abercrombie

    Thanks for the cool share.

  • Yngve

    I don’t quite understand. How does Grooveshark make more revenue than Spotify? And why is Grooveshark allowed everywhere whereas Spotify is forced to run country-by-country restrictions? Are they worried the Spotify model is too good?

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