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Is Spotify A Trojan Horse For Music Record Labels?

Over the last 24 hours, a raft of data has emerged over the way popular Swedish online music streaming service Spotify is being run and how it appears to be almost artificially propped up by the major recording labels.

Earlier in September, we tried to work out how much money Spotify was making; based on secondary data collected on the web and using some back-of-envelopes calculations, we guesstimated that Spotify could be making up to £19 million per year.

Now Out-law reports that (opens in new tab) Spotify almost certainly making more than £13 million per year, with between 100,000 to 600,000 premium customers in six countries, each spending on average £9.99 per month on the service.

Spotify also told Out-law that it has six million users (Swedishwire says that that figure was reached at the beginning of August) and in a separate instance, the CEO of the company, Daniel Ek, revealed to Techcrunch that the percentage of Spotify users that were premium subscribers was below 10 percent but in the "six figures".

Furthermore, the Guardian's Charles Arthur published two separate (opens in new tab) articles (opens in new tab) that point to an only conclusion. That in theory, Spotify shouldn't have survived under normal conditions because calculations show that it spends around £10 million per month, even when using conservative figures.

But where it does get murky is when you learn that when Spotify was still young, Sony BMG, Universal Music, Warner Music and EMI bought a small but significant stake in Spotify - 18 percent for around 9700 Euros - and to round things up, Ek was the co-founder of uTorrent, a popular file sharing client. It's a bit like the co-founders of Pirate Bay launching a legal website and got the big movie companies on board.

Spotify might be generating some significant revenue but that's not even enough to cover running costs (rising due to increase in streaming costs), let alone to generate a profit, which explains why at the beginning of September, it decided to revert to invite-only free subscription.

Which leaves us with scratching our heads and asking, why would record labels and independent companies back a horse that's losing tens of millions every quarter? Are they subsidising it through a very "easy ride" as Charles Arthur put it? Or is there something else that hasn't been disclosed yet?

One thing is for sure, Spotify is looking to grow even more - it grew by 800 percent in the six months to the end of August 2009 - and could by the end of next year overshadow iTunes and the rest of the market. Food for thought.

Désiré Athow
Désiré Athow

Désiré has been musing and writing about technology during a career spanning four decades. He dabbled in website building and web hosting when DHTML and frames were en vogue and started writing about the impact of technology on society just before the start of the Y2K hysteria at the turn of the last millennium. Following an eight-year stint at where he discovered the joys of global tech-fests, Désiré now heads up TechRadar Pro. Previously he was a freelance technology journalist at Incisive Media, Breakthrough Publishing and Vnunet, and Business Magazine. He also launched and hosted the first Tech Radio Show on Radio Plus.