Streaming music service Spotify is already providing a healthy revenue stream for record labels, according to a UK music executive.
There has been speculation that Spotify was doomed to implode thanks to rising costs and not enough revenue, but it seems that the music industry is happy with its perfomance and views it as a sustainable business model.
Rob Wells, the senior vice-president of Digital for Universal Music Group, has today revealed that Spotify is returning good revenues to the labels that have invested in it. As reported by The Telegraph, Wells revealed some of the details behind the way the service pays out to labels. It appears that in the UK and Spain royalties are paid out for every song streamed, whereas elsewhere labels get paid a more general share of revenue from advertising and premium account subscriptions.
Interestingly, Wells revealed that only 10 to 12% of users per territory need to be premium subscribers in order to make a profit there. In the UK and Spain this hasn’t been achieved yet despite the service’s popularity. Spotify recently returned to ‘invite only’ status in the UK in order to control user numbers.
This take on Spotify’s health starkly contradicts previous analysis that suggested Spotify was making a €5.5 million loss every month. Spotify may be performing extremely well for labels precisely because of how much it’s paying out, leading in turn to an unsustainable loss. Rob Wells’ reported declaration that Spotify is “sustainable” certainly looks on shaky ground in that respect.
Despite planning to launch Spotify in the hugely important US market last year, this still hasn’t happened. There is speculation that the business model will be tweaked for US launch, perhaps ditching the option for advertising funded free streaming altogether.