As Spotify prepares to go public, with massive losses forecast in its near-future, can the music streaming platform ever hope to turn a prit?
We now have a date for Spotify’s debut on Wall Street.
Yesterday, during its inaugural “Investor Day,” the company announced that it would go public on April 3rd. Much to the chagrin independent musicians and songwriters, it also confirmed that it would double-down on its freemium model. Spotify claims it’s a “vastly effective gateway” to its Premium service.
Spotify’s direct listing: not about pomp or circumstance.
The live-streamed presentation featured top company executives, including CEO Daniel Ek and senior execs Paul Vogel and Seth Farbman. They plugged the streaming music’s platforms’ services and its future.
Wearing a casual white T-shirt and matching sneakers, Ek told the crowd investors,
Emphasizing his “enormous respect” for the New York Stock Exchange, Daniel Ek explained why his company pursued a direct listing.
Ek also confirmed that Spotify now has 71 million subscribers, 3,500 employees, and over 35 million tracks. In addition, he dismissed the notion that the company would sell any direct stock to investors.
According to Variety, company executives discussed three main elements the streaming music service. They emphasized the service’s availability on all major platforms as well as how users can customize listening experiences. To improve the service, the executives reiterated how the service collects data on users’ habits. And, during the presentation, Spotify’s Chief Product Officer, Gustav Sodorstrom, spent considerable time discussing the company’s Freemium service.
Why the company will double-down on Freemium.
Explaining the three reasons the company will spend time building up its Freemium service, Sodostrom first told investors that it allows them to reach “millions consumers… on the fence about paying for music.” Freemium brings them into the service’s ecosystem. Second, it allows the company to collect data and “learn from the biggest possible group music fans in the world.” Third, with new consumers hooked, Spotify will play “a much bigger part their lives.” The more they engage with music on the service, the more they discover “that music is an important part their life worth paying for.”
Not everyone bought Sodorstrom’s arguments, though. DJ Gareth Emery, founder bitcoin-based streaming music platform Choon, decried the company’s emphasis on Freemium. In a post on Digital Music News, he lambasted Spotify’s emphasis on rewarding big record labels over individual artists.
Emery has over 1.1 million followers on Spotify.
In response to artists’ claims low payouts, Daniel Ek told investors that the company aims to enable “1 million people to live from music.” Yet, Gareth Emery has a point. Spotify itself may not know how to earn money from Freemium, let alone fairly pay independent artists.
Has Freemium become Spotify’s Achilles’ heel?
According to Business Insider, after customers subscribe to Premium, it takes 12 months for the company to recover the costs from Freemium listening. Why? The company has to pay an equal amount music licensing fees and royalties on every song streamed. Spotify CFO Barry McCarthy told investors,
This explains why the company lost $1.5 billion on $5 billion in revenue last year alone. McCarthy previously worked as the CFO Netflix from 1999 to 2010.
Yet, just like with Netflix, he expects Spotify’s eventual scale to fset major losses. Spinning the findings, McCarthy shared the following slide with investors yesterday:
Let’s face it: Spotify won’t ever become pritable. At least, not anytime soon.
350 shareholders and investors had attended the nearly three-hour long event. The Financial Times likened the event to a casual TED Talk. Variety called it “numbing” and filled with “extensive repetition.”
Prior to its April 3rd listing, Spotify will issue its financial projections on March 26th.
Calling the streaming music platform an unsustainable mess, Emery added,
As McCarthy’s slide clearly demonstrates, investors should brace for even wider losses before Spotify could ever hope to turn a prit. That is, if it actually figures out how.
Featured image by Sam valadi (CC by 2.0)