Spotify pays 80% of its income to rights holders

Spotify pays substantially less in royalties to rights holders for free streams than it does for paid ones.

In its latest global financial report released in Luxembourg on Tuesday, of the streaming giant’s $A1.1bn it received in revenue last year, $A994m or around 91% came from subscriptions while just $A105m million or around 10% came from advertising.

What's more interesting is that the figures are almost a year old; Spotify founder Daniel Ek recently said the company has grown to 50 million users since its inception in Sweden in 2008. In the 58 markets it now operates, Spotify boasts 12.5 million paying subscribers, yet it hasn’t turned a profit, with royalty payouts taking up more than 80% of its revenue for the year closing December 2013.

In a statement emailed to TMN, Spotify Australia said: “During 2013 Spotify's revenues increased from 430m Euros to 747m Euros - an increase of around 70% year on year. Gross profit increased from 41m Euros to 131m Euros over the same period, showing greater operational leverage for the company as it continues to grow and continues to monetise its fast-growing user base better than ever. Strong growth has continued throughout 2014 as demonstrated by the continued climb in our overall user and subscriber base."

The figures come to the defense of Spotify and its subscription model following a barrage of disdain from artists and industry alike. Taylor Swift and Aloe Blacc both believe streaming services don’t pay artists fairly with Swift going so far as to pull her entire cartalogue from Spotify. Regardless, its popularity is undeniable; the subscriber growth in the last quarter alone is the fastest in the company's history with a significant number of free users converting to the paid-for, ad-free model.

Whether the per-stream rate that artists receive goes up or not, streaming’s inclusion on the official ARIA and Billboard charts is another example of the platform’s popularity. Earlier this month it reported its royalties overtook iTunes earnings by 13% in Europe for global music publishing and music services company Kobalt Music Group.

“We believe we will generate substantial revenues as our reach expands, and that at scale our margins will improve,” Spotify said in a statement published by the Financial Times. “We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach.”