Can Music Services Generate Enough Revenue to Offset Royalties?
By emeadows
August 29, 2012
August 29, 2012
- Even amongst the giants of music streaming, financial situations are unstable. Both Spotify and Pandora, two streaming services with millions of users, are losing money because of music royalties, according to The New York Times.
- “Pandora, which went public last summer, has never had a profitable year, and in its most recently reported quarter lost $20 million on $81 million in revenue,” writes NYT, also reporting that “Spotify’s accounts for the last year, recently filed in Luxembourg, show that it lost $57 million in 2011, despite a big increase in revenue, to $236 million.”
- Pandora, which offers both free and paid services, relies most heavily on advertising for revenue, but can’t earn enough to offset its royalty costs. “Last year, Pandora paid $149 million, or 54 percent of its revenue, for ‘content acquisition,’ otherwise known as royalties,” notes the article.
- Spotify was able to earn 83 percent of its revenue from subscriptions, with 4 million of its 32.8 million users paying the $5-$10 monthly fee rate.
- Its royalty negotiations with labels are private, but “Spotify’s chief executive, Daniel Ek, has said that the company had paid in its history about 70 percent of its income ‘back to the industry.’ But a closer look at its recent financial statements shows that the ratio may be even higher,” reports NYT.
- It’s difficult to predict what might solve the music industry’s issues, as declining sales over the past decade make it difficult to imagine record labels will lower their royalty rates. “But the graveyard of failed digital services, and the financial struggles of Pandora and Spotify show that the music industry hasn’t yet figured out the balance between licensing costs and how much money a digital service can make,” concludes the article.
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