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As profits fall, Spotify’s efforts to please everyone could be its undoing

  • Despite being the world leader in music streaming Spotify still cannot make a profit

In a world where people purchase music less often, the future could lie in streaming services like Spotify. With 80 million listeners, it is the largest and it provides a free service with advertising placed among the music. Apple Music, its nearest rival, is subscription only (30 million) and while it has the entire Apple Corporation behind it, many believe Spotify is the best music streaming service. Tech reviews often put Spotify ahead of its main rival.

But being the biggest and best is not creating the profits its investors want. Spotify in its Q2 2018 report, posted mixed results. While it gained more subscribers the average revenue per user (ARPU) fell 12%.  The company also lost $584 million so far this year, and remains on track to lose over $1 billion by the end of 2018.

So where is it failing?

Spotify’s free service means many listeners are reluctant to upgrade to subscription. They also provide a family premium rate (no Ads) for $14.99 which has been abused by multiple users (more than the allocated 6) using the service. It also means that there is a shortfall of $44.95 a month with six less subscribers. To challenge this Spotify introduced a GPS verification for the family plan. But this, met with a huge backlash from Subscribers, introducing the twitter tag #familybybloodbutnotbylocation, has persuaded Spotify to ‘pause this policy.’

In an attempt to be a global brand Spotify has launched its services in the Middle East and North Africa but at half the price of Europe and US subscriptions, the company’s ‘accessible’ pricing could hurt its profit margins.

And in an altruistic move, it seems Spotify is prepared to pay royalties to artists where other providers such as YouTube have become rich by avoiding this.

In order keep profits high, the video platform pays out the bare minimum in royalties to copyright owners.  

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Spotify’s business model is struggling to stay afloat

Helen Smith of the Independent Music Companies Association explains.

“For every €1 ($1.14) from YouTube, Spotify pays €10 ($11.42).”  This is another hit on Spotify’s profits. Added to this, You Tube Music has just been launched with the weight of Google behind it. With yet another music streaming service could it spell too much competition for Spotify?

Ross Cotton who deals with digital sales at Cargo Records in London feels upbeat about the future: “Since Spotify keeps increasing its territorial reach (they’ve recently launched in ME territories) – I can’t see it affecting the streaming industry in a bad way in the future. Apple Music is also increasing in popularity, so it’ll be interesting to see which of these two figure heads becomes the most popular.

“If anything, streaming is a great way for people to listen to music before they commit to buying physical products, so even in this sense, streaming will always be a key figure head in the music industry.

 It’s really hard to tell how the future will look, with new elements and services appearing all the time, and changes happening every day