It seems inevitable, after all, that the music-streaming boom of the last decade will come to a screeching halt when the internet becomes a universal device, but there is a reason why we haven’t seen an explosion of music consumption before.
Music streaming services have historically struggled to monetise themselves; their most recent earnings report revealed that their net income was just over $1bn in the fourth quarter of 2017, with music being a relatively small part of that.
Spotify, Pandora, and Apple Music all claim to be profitable, but their streams are not.
Spotify has a huge amount of money to burn, and it’s a business that is increasingly dependent on its ability to drive revenue.
So while it’s great to be able to stream your favourite music at full volume and not have to pay for a subscription, that’s not enough to sustain a business of that scale.
The fact that Spotify is still profitable in 2018, despite losing millions of dollars a year, suggests that it’s still a profitable business.
However, it’s worth looking at what happened to music streaming when Spotify went public in 2014.
The streaming giant raised a lot of money, but its share price plummeted after it failed to make its initial public offering in the summer of 2015.
By 2017, Spotify had lost around $5.3bn in market value, according to data from ValueWalk.
Spotify was already a big company at the time, but this move would have been catastrophic for the music industry.
“The stock price plummeted in the middle of the year,” says Dan St. Clair, a music industry analyst at FierceFX.
“I think people would have gone into the [stock] market saying: ‘Oh, my God, Spotify, you’ve gone broke.
It’s not worth it.'”
Spotify is not the only music company to face such a scenario in the past decade.
Spotify’s financial woes, combined with the loss of a large chunk of its business, saw its shares plunge nearly 20% in 2018.
In the meantime, streaming services like Pandora and Apple have made money off of their music by bringing people into the music experience.
“There is a lot less of a need for Spotify to be a streaming service than people think,” says Mr St. Claire.
“If you’re not getting paid for Spotify, that makes you a less valuable customer.”
The music industry’s biggest music streaming service is now a $6.4bn business, which means Spotify has spent a lot more than it has made.
Spotify is in the business of making money The way that Spotify pays its artists is very different to the way other streaming services make money.
“It’s a very different business model,” says Scott Foval, an analyst at Ovum.
Spotify does not have the kind of exclusive deals that music publishers or artists like The Beatles or Pearl Jam do.
Instead, Spotify has partnered with music labels like Universal Music Group and labels like Sony Music Entertainment to stream music from artists it believes it can license.
Spotify can make money by licensing songs to smaller labels, but it doesn’t need to pay them for the use of its music.
“You could make a lot by not paying Spotify for use of your music,” says Foval.
“But Spotify has made a very strong case that it is a platform for people to listen to music for free, without paying a penny.”
Spotify’s music business is the largest of any streaming service in the world, but Mr St Clair says that there is another reason Spotify is making money on its own: it’s relying on people’s music.
The vast majority of Spotify’s revenue comes from its advertising.
The company has a strong advertising partnership with Apple Music, Spotify’s main rival, which has a combined revenue of $5bn.
Spotify charges artists an average of $3.50 per download for its ads, and the company says that it uses that money to fund the creation of music content.
Spotify pays artists a flat rate of $0.03 per play, which can go up or down depending on how many plays a song gets.
Spotify doesn’t make money from Spotify ads alone, but also from other advertising.
Spotify and Apple can charge artists fees based on the number of plays they get from Spotify, but many artists have used the service as a platform to make money off the streaming service.
Artists such as Kanye West have earned millions from the platform, with his latest album, Graduation, selling more than 10 million copies in its first week of release.
Spotify also makes money from ads that are displayed on other services, such as Apple Music.
Music companies also make money out of ads for Spotify.
These ads are typically paid to music labels or other artists, but they’re also usually displayed on Spotify itself.
Spotify paid more than $1.6bn to music publishers and labels in the first half of 2018, according a report from Music Publisher Analytics.
This includes a total of $8.9bn from ad revenue on Spotify.
Spotify earns money from ad-supported