Has Spotify Answered Its Royalty Problem?

In its much-anticipated filing to go public last month, Spotify has revealed revenue growth was outpacing costs, suggesting the music streaming service was striking deals with the music industry that defeat the central tension in its business model, according to Reuters.

Spotify launched in 2008 and is now available in more than 60 countries, but a big question mark over its model remains whether it can find enough subscribers and other revenue to pay for the mountain of royalty fees to record labels and artists.

The filing by the Sweden-based firm for a direct listing as SPOT on the New York Stock Exchange showed revenue rose 39 percent to 4.09 billion euros ($5.05 billion) in 2017.

Cost of revenue - which mainly consists of royalty paid to music record labels and music publishers - rose 49 percent in 2016, but just 27 percent last year, the company’s documents showed.

Spotify attributes the fall to a cut in content costs following new licensing agreements with record labels and music publishers, it said in the nearly 200-page filing.