Spotify’s storming of the U.S. market last year has seen the company rack up a total of 13 million active users of its music streaming services — three million of them paying. It is projected to have revenues of $889 million this year, up 160 percent on 2011. But with that growth also comes increasing net losses, which in 2011 doubled to the tune of around $60 million.
Daniel Ek, CEO of the music streaming company, says in a candid interview with the Swedish financial paper Dagens Industri (translation here) that the question of when Spotify will show a profit is currently irrelevant. “Our focus is entirely on growth,” he told the publication. “That is priority one, two, three, four and five.”
The company, which is now expanding to more markets including Australia, has raised $189 million in funding to date, which values the company at around $4 billion. But although we have seen a rush of companies like Zynga, Groupon and soon Facebook taking financials like that to the public markets to take their businesses to the next level, Ek rules out Spotify following in their footsteps:
“We want to build this company long term,” he said. “The stock exchange is not an option for us.”
But with a valuation of $4 billion, what he has not ruled out is further investment in the company — even though the company does not need it. That might take the form of another round of financing or even a rights issue, DI notes.
“We have no need for more capital to operate the business plan we have,” he told DI. “But I have learned to always take the money [even] when you do not need the money. We work on the principle that if an investor can add strategic value and the valuation is good, we are interested.”
Ek told DI that he spends about half his time in the U.S. these days. The Stockholm operation — where his office features a big picture of Ted Nugent, among other things — is mostly focused on product development, “while working in New York is more about business.”
In a sense it is not surprising that Spotify is losing more than it is making: At the moment, the majority of the money that Spotify gets from its premium (paying) subscribers goes to the labels: some 70 percent of those revenues get paid out to rights holders, and that’s before Spotify covers its own operational costs — which can be substantial for a business focused on growth.
It’s not clear that those terms will ever swing in a way that is more favorable to middle men like Spotify offering distribution. The music industry has been very hard hit by the move to digital: in 1999, sales of recorded music were estimated at $44 billion, but today they are around one-third of that.
That’s a big fall, but Ek told DI that he believes in the next few years we’ll see revenues go back up to those 1999 levels, with companies like Spotify being the ones to capitalize on that growth.
His reasoning: Last year Lady Gaga sold 20 million albums, but in 2010 she also became the first musician to get 1 billion views of her videos on YouTube. Ek believes that Spotify can be the company to bridge that current sales reality (20 million albums) and the clear public appetite for more and more Gaga (those 1 billion YT views).
There are clearly other services (Rhapsody, MOG, iTunes and so many more) that are vying for the same consumers as Spotify, and there will be users who are happy enough to keep watching those free YouTube videos, but Ek says that when the company does manage to hook a consumer, it gets him good:
“Our secret recipe is that we have made people change their behavior and now want access to music that they share with their friends using our playlists,” he said. “The more users we have to share their playlists, the faster users build up their collections. There is constantly increasing their willingness to pay for the service. The longer you use Spotify, the more likely you are to start paying for Spotify.”