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Has Spotify answered its royalty problem?


By Subrat Patnaik

(Reuters) - In its much-anticipated filing to go public last month, revealed revenue growth was outpacing costs, suggesting the streaming service was striking deals with the industry that defeat the central tension in its business model.

launched in 2008 and is now available in more than 60 countries, but a big question mark over its model remains whether it can find enough subscribers and other revenue to pay for the mountain of royalty fees to record labels and artists.

The filing by the Sweden-based firm for a direct listing as SPOT on showed revenue rose 39 percent to 4.09 billion euros ($5.05 billion) in 2017.

Cost of revenue - which mainly consists of royalty paid to record labels and publishers - rose 49 percent in 2016, but just 27 percent last year, the company's documents showed.

attributes the fall to a cut in content costs following new licensing agreements with record labels and publishers, it said in the nearly 200-page filing

Graphic: Spotify's revenue growth outpacing costs -

pays fees to publishing companies such as Sony/ATV Publishing, Warner and Vivendi's Universal Group who act for artists ranging from to unknown indie bands in exchange for a commission.

To pay for that, it has some 71 million premium subscribers globally, about twice as many paying customers as its closest rival with 36 million as of February. Including those who listen to advertising-supported streams, has about 159 million monthly average users (MAUs).

Graphic: has millions of subscribers over -

Nearly 60 percent of Spotify's monthly users were ad-supported subscribers in 2017. However, at a headline $9.99 a month, premium customers generated 90 percent of total revenue from listeners in the same period.

Graphic: Nearly two-thirds of listeners are ad-supported -

There may still be problems ahead.

Many industry figures say the streaming revolution, led by Spotify, has crippled the commercial logic of recording as a profession.

Radiohead and have been among high-profile dissidents; both have returned to the service.

In January, U. S. copyright authorities decided to increase over the next five years royalty payments streaming companies like and must make to songwriters and publishers, a trade association for publishers said.

While the revenue/cost-of-revenue balance is improving, Spotify's net loss is widening - doubling last year to 1.24 billion euros from 539 million euros in 2016. Its operating loss widened to 378 million euros in 2017 from 349 million euros.

That suggests the company will need to use its clout to strike more lucrative deals in the coming years if it wants to turn a profit from a growing subscriber base as it battles Apple, and .

(Reporting by Subrat in Bengaluru; editing by Patrick Graham and Sriraj Kalluvila)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, March 13 2018. 01:06 IST