Spotify is gaining users at a steady rate. With a total of 140 million active users, 48 million of whom are paying subscribers, the company is still the largest streaming music provider by a significant margin. However, newcomers are catching up, notably including Apple Music which now has a total of 27 million subscribers. That figure has doubled in the past twelve months.
In its earnings call last week, Spotify reported a net loss of €539.2m, or double the loss it saw in 2015. Despite revenue increasing 50 percent to €2.9bn, most of the money the company earns ends up being immediately spent on costly contracts with music providers.
The company is reportedly locked into deals with record labels that will cost it over $2 billion in the next two years. As Recode reports, that figure is expected to rise substantially in the near future when Spotify re-signs Sony and Warner Music Group. Even if revenue continues to grow at a steady pace, the company is likely to be making a loss for the foreseeable future.
The news comes as Spotify prepares to take itself public. The company seems set to opt for a direct listing on the stock market, avoiding having to raise additional funding for an initial public offering. Some of its deals with the music industry are related to going public. The company won’t be able to list itself until it has settled new terms with Sony and Warner, two of the biggest names in music distribution.
While there’s little prospect of a substantial profit appearing anytime soon, Spotify is optimistic for the long-term growth of its business. It believes it will perform better as it scales, attracting additional users and signing more favourable deals with the industry.
Spotify attracted $1 billion in investment last year, a move which led many analysts questioning why it needed the money. It’s thought the company is eyeing a major expansion into video content, potentially opening up many new avenues to make revenue from. In its statement after its earnings call last week, Spotify said it is investing “relentlessly” in its product, again hinting at future developments in the pipeline.
“We believe we will generate substantial revenue as our reach expands and that, at scale, our margins will improve,” the BBC reports the firm said. “We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach.”
If Spotify is to sustain its growth going forward, it’s likely that its next big expansion will be into a different sector of the industry. With almost all major technology companies now expressing an interest in video, the format seems a logical next step for Spotify.
The potential to produce its own original content and create new combined subscriptions for members could let Spotify finally see profitability through a new medium. First, it needs to convince investors that it can continue to scale though, a challenge that will only really present itself once the company has gone public.
