The online music service provider Spotify today announced details of how 10 million users still led to losses of over £16 million. Despite rapid growth in terms of users, Spotify are currently a great example of how many popular website services providers struggle to be profitable.
The main reason behind Spotify struggling to make ends meet is the licence fees they pay. Royalties are handed over for every track that is played via their online or mobile application, and the London based company couldn’t generate enough advertising revenues to match their costs.
In-spite of the losses the Swedish firm have also disclosed their intentions to crack the US market place, but need to find investment to do so. It’s obvious that the plan is to go for volume and rely on economies of scale to make the business model successful.
Having a large slice of the online music sector would allow them to not only demand greater advertising income, but also increase the brand value for Spotify and fight for lower royalty payments from the record labels.
Spotify are not the first high profile online company to have a large following but struggle to make money. Facebook, Twitter, YouTube and Yahoo all famously lost masses of cash whilst growing their brand and usage. Spotify will hope a large percentage of those who sign-up to the service will opt for the £9.99 a month subscription to remove adverts from song play-lists.
