Spotify's Losses Widen as Royalty Costs Pile Up

With more than 71 million premium subscribers, 159 million monthly active users and more than $4 billion in annual revenue, Spotify is the undisputed leader in the booming music streaming market. And yet, a look at the company’s financials revealed ahead of its upcoming listing at the New York Stock Exchange leads to one question: will music streaming ever be a profitable business?

According to the company’s F-1 prospectus filed with the SEC on Wednesday, Spotify generated €4.1 billion ($4.9 billion) in revenue last year, up 39 percent compared to 2016. However, the company’s expenses piled up almost as quickly, leading to a further increase in operating losses. Spotify spent more than €3.2 billion ($3.9 billion) on royalty and distribution costs related to content streaming last year, eating 79 percent of its revenues. Adding to that research and development, sales and marketing and general and administrative costs, Spotify’s operating loss amounted to €378 million ($453 million) in 2017.

Balancing revenues and licensing costs is a problem that all streaming providers face and one that might eventually give Apple a competitive edge over Spotify and its peers: Apple has a hugely profitable hardware business and billions of dollars to spend. As long as Apple Music supports hardware sales and helps to lock users into the Apple ecosystem, it probably doesn’t matter if it’s profitable. Spotify doesn’t have that luxury and will eventually have to figure out a way to keep royalty costs at bay.