In early 2016, a Spotify representative told The Music Business, “One million streams is the maximum amount Spotify pays to a record company and is a small portion of the music industry.” That would mean that Spotify pays $100M for one million streams. The representative said the amount paid is smaller because streaming music has not grown as fast as albums have.
How much does Spotify get for all the streams it serves?
According to Bloomberg, Spotify may get a 3 percent royalty payment every time someone streams an album through the service. In the words of the report, “If Spotify serves only 1.5 million albums, it would make $3.9 million per album.” Even if the number of people using Spotify is the same as it was in 2015, or even lower, Spotify would only be earning $2.5MM per sale.
What’s the difference between music industry and Spotify’s revenue?
The revenue split may make sense if someone were to download their own album from Spotify instead. But, Spotify is not an iTunes for music. While Spotify uses some of Apple/Google/Amazon’s music APIs, it also uses its own proprietary music playback technology called MusicWav. Apple is currently seeking to expand that music technology to make streaming work better. This means that Apple’s Music streaming platform will gain the ability to listen to songs that are less common. And Spotify will get paid only for those songs that were not downloaded from Apple.
What’s more, Spotify offers music customers exclusive content. As a matter of fact, many of the new Apple TV devices (such as the second-generation Apple TV set-top box) have built-in music services available. When the user streams something to his/her Apple device, an exclusive song playing on the Apple device will play instead of a random song from the Spotify service.
What’s the biggest part of Spotify’s business?
The big chunk of their business is paid royalties. With a royalty of $10.50 for every stream for all 1 million streams, the company gets $10.5MM, a figure that doesn’t even include the amount of revenue from the music services.
What is Spotify thinking?
To be clear, if Spotify goes public it will go out of business because its business depends on the music industry. Its CEO Daniel Ek believes that the company is undervalued but a lot of people are worried about that. I believe the future is that Spotify becomes a standalone business, like a web hosting
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