The heated debate about whether streaming music is sustainable for musicians continues, but it’s always useful to remember the parallel discussion about whether streaming music is even sustainable for the companies providing it. The latest financial results from Spotify and Rhapsody will provide more fuel for sceptics on that question.
Spotify’s revenues rose 45% to €1.08bn ($1.2bn) in 2014, but its net loss grew by a lot more – up 190% year-on-year to €162m ($180.8m) in 2014. The company’s operating loss that year was €165m, up from €93m in 2013. Spotify gave its now-familiar reasons for the heavy losses: aggressive global expansion and product development. Payouts to rightsholders? Royalty and distribution costs were up 46% to €882m ($984.7m) in 2014, keeping pace with revenues.
Spotify’s lack of profitability won’t prevent it from going public at some point: it certainly didn’t stop Twitter, which has continued to report heavy losses since its IPO. Spotify certainly increased its reach in 2014, from 36m active users at the start of the year to 60m by the end. 15m of those were paying subscribers, as we know: 25% of its user base contributing 91% of Spotify’s revenues in 2014.
Still, prepare for more debate about streaming’s sustainability, and not just about Spotify. Rhapsody, for example, saw its net losses rise from $1.6m in Q1 2014 to $8.9m in Q1 2015 according to that company’s latest financial filing.
Its revenues rose from $42m to $46.3m in the same period – a 10.2% rise compared to Spotify’s 45%. While the latter is funding its expansion through venture capital, Rhapsody has just been extended $10m of loans by RealNetworks and its other main investor.
The bigger picture? Both these companies, and other pureplay streaming services, are facing up to competition from two huge technology companies – Apple and Google/YouTube – who can fund similar losses in their streaming music services with a small slice of the profits from (respectively) hardware sales and advertising.
That doesn’t mean the pureplays are doomed, but it does show why their business models will remain under the microscope in the months ahead.