Is Spotify worth more than the entire music industry?

Four charts that reveal the truth about music streaming services

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The Independent Online

The music streaming debate has been overrun by talk of Jay-Z’s celebrity-endorsed app Tidal, which has already crashed out of the top 700 US apps. Behind these headlines, Spotify is still making its quiet ascendance. According to new reports, Spotify may now be worth more than the entire US music industry.

Is that true? Earlier this month, Spotify neared a deal to raise $400 million in funding, according to the Wall Street Journal, which would value the company at $8.4 billion. Meanwhile latest figures from the Recording Industry Association of America show that last year was a fairly flat one in terms of revenue from retail sales, down 0.5 per cent at $6.97 billion.

Spotify's increasing value has led to a fair few reports that Spotify is now worth more than the entire US music industry.

If you look at the numbers together, Spotify does look like it’s worth more.

But if you look at Spotify’s revenue rather than its valuation, it’s actually worth a lot less. The company’s latest financial statement shows that Spotify’s revenue hit $1 billion in 2013, up about 74 per cent since 2012. Analysts say its 2014 revenue is likely to have been around $1.3 billion.

Even then, Spotify is yet to turn a profit. It pays 70 per cent of its revenue to record companies and music publishers – it said in November it had paid $2 billion to artists in royalties – and plans to grow to over 2000 employees this year.

Of its 60 million users, only 15 million pay to use the service. Major labels Sony, Universal, Warner and EMI each own a separate stake in Spotify that add up to combined 15 per cent. They have reportedly pressured Spotify to convert more users into paying customers, but Spotify has so far refused.

You can't blame the majors. According to Spotify, $897 million, or about 91 percent of its sales, came from subscriptions, and only $90 million from advertising.

Luckily for Spotify, an increase in paying subscribers may be inevitable. The RIAA shows that more people than ever are paying to stream music.

The proportional increase in revenue from paying subscribers across the whole of the industry is also increasing each year. Paid subscription services grew 25% year-over-year in 2014 to $799 million, while revenues from ad-supported on demand services grew 34% to $295 million.

With Apple and Google in talks to launch their own streaming services, this percentage is likely to rise. No wonder the major labels are keen to own a stake.