Spotify now worth US$4 billion

Nov 25, 2013

According to the Wall Street Journal the round was lead by Netflix investor, Technology Crossover Ventures, and involved an investment of $250 million. The successful new round is being taken as a sign that the long-term Spotify monitisation plan is actually working.

Spotifty maintains a huge online library of (mostly) popular music and users pay one way or another to stream songs or playlists to their devices - PCs, mobiles, tablets and so on.

Spotify gets its money through a combination of advertising (visual as well as radio-style) and subscription revenue. It’s essentially a fremium play - free with ads while a subscription shuts the ads off.

The ‘problem’ with Spotify is that it is entirely reliant on the continuing good will of the big music companies who set the royalty levels for the songs Spotify offers.

To start, back in 2008 when the service launched, the ‘free’ option was unlimited, but because the numbers weren’t stacking up Spotify introduced restrictions on the number of times a single song could be heard - obviously too many songs downloaded for the advertising sold against them, so the way to make the model work was to push users from free to premium with more vigour.

Despite this change Spotify’s user base continued to double every couple of years, but the fundamentals of the business model appear not to have yet responded to scale. Spotify currently has 24 million free users and 6 million subscribers and its revenues again doubled last year. But its losses also doubled last year in line with user growth, to £10.1 million.

Clearly its investors see a financial line developing that we can’t.

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