Spotify Has 10 Million Paying Customers, Still Loses Money

There have been three broad eras so far of online music. There was the era of Napster, when rampant piracy was great for music-loving young people, and a seeming catastrophe for artists and record labels. There was the era of iTunes, which allowed fans to buy only the single song that they wanted to hear. Now the era of Spotify lets us simply stream music on a variety of devices. It’s convenient, but is it sustainable for everyone…especially Spotify, which still doesn’t turn a profit?

It’s clear that consumers enjoy the streaming business model, but what about the companies that provide those streams? Spotify is based in Stockholm, Sweden, and has about 40 million members. They operate in a few dozen countries, but the United States and United Kingdom are its biggest markets. Most of the people who use the service get some ads mixed in with their music, but about a quarter of its members have a paid, ad-free subscription, which costs around $10 per month.

The important question is this: can a music-streaming service turn a profit? Normally, notes Bloomberg Businessweek in a profile of the company, cloud-based services eventually turn a profit by scaling up: building a service and licensing content, then bringing on more paying customers. For Spotify, it won’t quite work that way: they pay artists a fixed amount each time one of their songs play. While some musicians aren’t thrilled with this arrangement, other Spotify artists, who might stretch the definition of “musician,” think it’s pretty peachy.

Apple’s rumored talks to purchase Beats Audio isn’t just about getting the company’s colorful, high-priced headphones for itself: Beats has a music-streaming service that competes with Spotify and Pandora. It could be that the only way a music streaming service can support itself is as a loss leader for a hardware company or a software platform.

Spotify Hits 10 Million Paid Users. Now Can It Make Money? [Bloomberg Businessweek]