# Do The Math: How Big Will Spotify’s Revenues Be In 2010?

Summary:

Today, a music industry website revealed some startling financial about red-hot music service, Spotify. Using that and some other publicly available information, we have put together a revenue model that shows the company is having a spectacular 2010, at least from a revenue perspective.

Updated with corrected numbers: It seems the Internet is obsessing over Spotify’s revenues and losses from 2009, which doesn’t make sense considering that in about five weeks we’ll ring in 2011, and especially since Spotify will close the books on what will arguably be a year of scorching growth.

Music Ally, a music industry publication, earlier today revealed Spotify’s 2009 financial statements. According to these documents, nearly 60 percent of company revenues are coming from subscriptions and rest is coming from advertising. In 2009, the company had 7 million total users of which 250,000 were paying subscribers. In July 2010, the company said it had 500,000 subscribers, and in late October 2010, it was rumored to have 650,000 paying subscribers. Roughly speaking, Spotify added approximately 41,600 new paying subscribers per month.

Spotify, which is based in Stockholm, Sweden, is rumored to now have 10 million users, including 650,000 who pay about 10 Euros (\$13.86) a month to the service as part of their premium subscriptions. Nearly 90 percent are paying the full price while 10 percent are said to be paying 5 euros for limited edition version of Spotify.

Using that very limited data set, I put together a revenue model for Spotify’s paid revenues. Now mind you, this data should be taken with a pound of salt, since I’m extrapolating from publicly available information, some of which might actually be hearsay. With that huge caveat in mind, it seems Spotify had a big 2010.

Back of the envelope (see chart) estimates show that the company will bring in close to \$140 134 million (102.5 98.88 million Euros) for 2010.

We used the assumption that the company maintained its 2009 paid-versus-advertising revenues ratio. Of the total, \$84 80 million (61 59.33 million Euros) are coming from subscriptions (60 percent) and another \$5653.6 million (41.3 39.55 million Euros) came from advertising. These rough numbers also don’t tell you one way or the other if the company is or will it be profitable in 2010.

Spotify’s royalty payments to record labels are going up sharply, almost \$30 million in last eight months alone, according to published reports. And the increase number of subscribers and users means the company’s cost of operations (including infrastructure costs) must be going up.

Nevertheless, the company is looking at a big 2011. With more wireless carriers interested in pushing Spotify, and handset makers such as Nokia promoting the service aggressively on its Ovi platform, there will be significant momentum for Spotify’s subscriber base.

Spotify has raised over \$50 million in funding, and is rumored to be profitable based on its European operations alone, but has struggled to find a toehold in the all-important U.S. market. If the 2010 success is any indication, the company doesn’t need U.S. to have a rocking 2011.

Updated: The original post included December 2009 revenues which lead to overstatement of subscription revenues for the entire 2010 by \$3.389 million (2.5 Million Euros.) The error is regretted and I have updated my estimates to reflect that. Using the new estimates, the total revenues for the company are \$134 million, down from previous projection of \$140 million.)

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1. Nobody cares about Spotify in the US… no comments on the blog says it all…

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1. Yup, you are right :-)

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2. I care about it. I live in the USA and have been using Spotify for two and a half years (I know a guy who knows a guy that works for Spotify). It is great, but if I didn’t have it I think Grooveshark would do an okay job holding me over.

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2. Good article! Agree with you, there is no need to go crazy about the loss in 2009. They are still very young and have grown alot since then, and as you say they will probably show some good results for 2010.

What I really like about Spotify is that it may not make as much per user as lets say itunes but it has, at least in Sweden, stopped alot of people from pirating. That means Spotify is generating money to the labels from people who earlier wouldn’t have made the labels and artist a dime!

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1. Patrik

Interesting observation on the piracy. I could also make a point that one tends to buy much less music as a result. I have seen that Spotify has helped focus and improve my songs-i-must-buy selections.

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1. Om, great article – thanks for this!

I remember in a recent presentation by Andreas Ehn (former CTO) talking about their number one competitor: piracy. They needed to create a service where piracy would be used as a benchmark. A very interesting approach, but I think it is exactly for this reason the service is so addictive and amazing.

Also, I’m not the right person to comment on this, but they have a genious infrastructure build up to support their business. Andreas Ehn shared in the same presentation that around 10% of total traffic (if my memory serves me right) in Spotify burdens their servers as it’s all built on p2p file sharing technology and people download songs from each other.

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2. Antti thanks for the comment and also for the link on your blog. Appreciated.

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3. I agree Antti, It’s true that they have a very stable application. They have a great team and as one of them are the creater of bitTorrent client µTorrent they know a thing or two about p2p-technology.

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3. Spotify is amazing, can’t remember what it was like to live without it. Bummer for the people who live in the States – it’s much better than Pandora or any US music service.

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1. Martin

I agree — it is quite amazing.

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4. Spotify is an amazing application both on my mac desktop and my android mobile device and I really hope their business model turns out to be sustainable!

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5. You seem to have 13 months of revenue

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1. Yup, you are right. I am fixing it right now.

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6. Quite good article, apart from some maths issues and poor assupmtions.

the subs revenue using your assumption of 41,600 new subs per month with 90% paying €10 and 10% paying €5 gives 12 months (see markp comment) revenue of €59,325,600.

I’m afraid that your assumption that ad growth will be the same proportion of total revenues again this year is seriously flawed – total non-paying users did not grow at the same rate as paying users, and also there is simply no way the online audio ad market is anywhere near €40m yet (given that the whole radio ad market in the UK (Spotify’s biggest market) is only ~ £500m) – nevermind Spotify’s share of it.

Total free users at end of 2008 were ~1m, 2009 ~6.75m, 2010 ~9.5m. apparently time per user per week has dropped from about 2hrs (2009)to 1.5hr (2010). therefore the increase in free user hours is only 73% – so if they achieved a similar rate of ad rev / user hour I would estimate that their ad revenue for 2010 will be more like just under £8m.

this gives them a total ad rev of just over €67m.

Still not bad. the question is how much will they have to pay the labels? are all those free listener hours worth it?

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1. Yup, Vizier My bad. I ended up including December 2009 revenues. I should have rechecked the numbers and rechecked them again. Thank you and @markp for catching that and flagging it for me. I totally appreciate it.

On the advertising revenue part, I actually don’t use them in my calculations at all and use subscriptions as a more accurate barometer of their business. I mean unless there is someone who hands me the advertising sales for the company, I wouldn’t know.

That said. I would say your advertising model makes a lot of sense and merits more investigation. I am going to dig around a little. Maybe the “slow advertising revenues” is why they need to get into the US fast.

PS: Interesting data stat for their average time spent on service. Can you help me source that?

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7. Updated with correct numbers? Call me old-fashioned, but that sounds like a correction. What’s next–Updated with correct facts? Updated to reflect fact the author now takes the opposite viewpoint?

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1. David

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1. apologies for the tone…a cheap shot…I just felt a tad misled by the “updated…” which to me suggested the story now featured additional, relevant information…

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2. David no offense taken. You were doing your job as a reader on expecting better from me. and I did make a mistake. Appreciate you keeping me honest :-)

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8. [...] Om Malik at GigaOm said things might be better than they look: “It seems the Internet is obsessing over Spotify’s [...]

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9. Spotify is the first subscription service I would pay for. Spotify is a great example of how “making applications social” really ads significant value. The facebook integration features make music discovery much easier. The ability to listen to your facebook friend’s playlists and to “send” a song to your friends is great.

If the labels are concerned about iTunes dominance in the US, they should liscense spotify. Because if iTunes ever got facebook integration with shared streaming playlists and cloud service like spotify has, it would be over. Too bad I live in the US and I can’t use spotify without jumping through a bunch of nonesense hoops.

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10. Very interesting article. If you wonder about the income generated for artists and labels, just have a look at:
http://www.informationisbeautiful.net/2010/how-much-do-music-artists-earn-online/
Each play is supposed to generate \$0.00029 for the artist, which is not a much… if you are not a very popular artist!

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11. [...] away into 2011 and Spotify has held on to its extreme popularity in the UK. In fact, according to a report at GigaOM, the streaming music service is seeing a giant boost in paying subscribers. Since Spotify’s [...]

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12. They nailed it, industry on board (gave them a chunk), flexible revenue streams (freemium, ad funded, subscription – tailor to locale), fill in any holes with own music.. and a seriously great product.

Imagine.

- Being included in hundred of millions mobile contracts globally.
- Video/TV same way (its just media)
- Trillions & Trillions of potential streams in China, India, Africa (fastest growing mkts in world = fastest growing Ad mkts)- yeah small now but give it a few years.

I’d say the future’s bright.

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13. [...] for the revenue. Spotify claims that 90 percent of its paying subscribers opt for the more expensive, 10-Euro-per-month option, [...]

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14. Looks like the maths is still wrong….If spotify is adding 41,600 new subscribers every month and say all were paying 10 Euros, it still means increase in subscription revenues of @416,000 Euros per month.

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