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Off the mark with Spotify revenues

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Last year, I did a back of the envelope estimate of revenues for Spotify for 2010 at $134 million, of which $80 million came from subscriptions and the rest from advertising. It’s time for a mea culpa: I blew it. According to data obtained by industry blog Music Ally, the company brought in $99 million in total revenues, of which about $71 million came from subscriptions and $28 million from advertising. The company that saw its sales grow 458 percent from 2009 lost about $42 million versus the $26 million it lost in 2009.

While my subscription revenue targets weren’t that far off the mark (wrong none the less), the advertising revenue shortfall is scary and should give everyone who wants to offer an ad-supported music service a pause. Spotify since has launched in the U.S. and is tightly integrated with Facebook. It now has about 2 million subscribers and 10 million users. Music Ally estimates the company will turn profitable this year.

7 Responses to “Off the mark with Spotify revenues”

  1. The number of advertisements Spotify was giving me increased by about the same percentage as their sales I think! I did go Premium for a while, but the radio feature never really delivered for me, so have now gone back to Grooveshark.

    Will be interesting to see how much of an effect their Facebook integration has on the subscription levels, it was always going to bring in additional (free) members.

  2. as far as pandora goes, spotify’s radio feature sucks. the songs it picks are so bad and a lot of them unrelated to the genre you choose(trance in my case) that it is simply no replacement.

  3. Michael Robertson

    Spotify – like all the music services – will never turn a material profit. This is because they are forced to sign onerous licensing deals with the major labels. This means even if you build a service consumers love the royalties paid to the labels will consume all your revenue. Remember they are all short term deals which means the record labels can and will raise them as Spotify grows.

  4. This is why I’m so bearish on the Pandora stock pick. Too many competitors, ease of entry and not enough monetization. I think Spotify will be on top eventually once it gets more market saturation. Still, I wouldn’t want to invest. Good numbers Om.

  5. Brad @ The Next Web

    I’m still very curious as to the conversion rate that the service will see from its forced Facebook integration. As it is with Facebook in general, just being a user doesn’t mean that you’re an engaged user. In the case of Spotify, the levels of engagement need to be two-fold – Both heavy listenership for advertising revenue and those who are willing to pony up the cash to go for a subscription once the free time runs out.

    I think, of all of the streaming services out there right now, Spotify likely has the best shot at being successful in the long term, but there are still loads of uncertainties to overcome.