Spotify’s revenues surged in 2013, but the music streaming service failed to turn a profit as it paid out more than 80 per cent of its turnover to record labels and other rights holders.
The Stockholm-based company paid €605m in royalty and distribution costs in 2013 – accounting for more than four-fifths of its revenues. By comparison, its sales and marketing costs were €111m, and it spent €73m on research and development.
These figures come in the same month that Taylor Swift, the US pop star, pulled all of her music from Spotify, saying that the company does not compensate her adequately for her work. In particular, she objected to Spotify’s policy of offering a free version of its service, which is supported by advertising and pays low royalty rates, in addition to its $120-a-year paid tier.
The company’s financial statements, filed in Luxembourg on Tuesday, showed that revenue rose from €430m in 2012 to €747m last year, while its operating loss widened from €80m to €93m.
The figures will fuel doubts about whether Spotify and other licensed streaming services will be able to generate sufficient profits to justify the high expectations of their investors.
Spotify, which last year sold equity that implied a valuation of $4bn, is the leading company in the nascent market for subscription music streaming. Its rivals include Deezer, Apple’s Beats Music and Google’s YouTube.
The company said that it would be able to achieve profitability over time, as its userbase expanded beyond its current total of 50m monthly users – of whom 12.5m were paying subscribers.
“We believe we will generate substantial revenues as our reach expands, and that at scale our margins will improve,” the company said. “We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach.”
In the year to the end of December 2013, Spotify generated subscription revenues of €679m, up from €375m in the previous year. Advertising revenues were just €68m, compared with €56m in 2012.
Faisal Galaria, industry expert and former vice-president at Spotify, said the results showed “strong success in building the subscription model”, even if the company was still making a loss.
He added that if artists felt short-changed, “they should be pointing a finger at the record labels”, which were responsible for passing money they received from Spotify on to their artists.
Spotify charges up to $10, €10 or £10 a month for unlimited access to a library of more than 20m songs. To attract new users, it also offers a free version that is supported by advertising.
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