That left an operating loss of $43 million, and management is calling for an operating loss of $200 million to $378 million this year. Spotify generated $1.353 billion in gross profit last year, and all of that was reinvested to drive growth. Last year, Spotify's cost of revenue - which primarily consists of royalties paid to the big music companies - was 74% of total revenue. As you might imagine, the music companies are doing very well with digital streaming. The streaming market grew 34% last year and made up 47% of all music industry revenue. Music companies are minting money at Spotify's expense This royalty is based on a combination of a percentage of subscriber revenue and user engagement measures, and it makes up a substantial portion of Spotify's cost structure. These tech companies have sticky ecosystems and vast resources at their disposal, which could allow them to strike better deals with the music labels and artists and undercut Spotify.Īlso, there are concerns about Spotify's profitability - it hasn't reported any profits, and analysts aren't sure when it will break even. The company pays a royalty to the music labels for the right to stream music, which means costs move in tandem with revenue. Although these companies don't disclose the number of subscribers in specific regions, Apple Music reportedly surpassed Spotify in subscribers in North America recently. Even with that momentum, there are plenty of skeptics. For one, Spotify is starting to face more competition as, Alphabet, and Apple come on strong with their respective music services.
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