Spotify Investors Can Expect Very Thin Profit Margins

Spotify has 71 million paying subscribers and has been able to fight off competitors like Apple, Google, Amazon and others, despite the many advantages the well-heeled rivals have.

Apple, USAToday reports, has sold over 1 billion iPhones. Every time an owner hits the music icon, Apple offers to sell them an Apple Music subscription.

Yet the gap between No. 1 Spotify at 71 million and No. 2 Apple at 36 million is quite wide.

Paul Resnikoff

In the end, will that be enough? Apple, Google and Amazon can afford to have loss leader music services, as another way to hold onto consumers and sell them other things, while Spotify doesn’t have another product to pitch.

Paul Resnikoff, the publisher of the Digital Music News blog, believes Spotify can start turning the corner financially at 100 million subscribers.

If it gets there, Spotify will still be looking at some very thin margins. Resnikoff says 73% of every subscription goes to the labels, music publishers and artists, which leaves just 27% for overhead, salaries and costs of doing business.

The labels want to see Spotify succeed, he says, and have a viable competitor to Amazon, Apple and Google. “I’m optimistic Spotify can pull it off," he says.

But history isn't promising. Pandora has been struggling for years. The ad-supported radio service has been around since 2000, is on virtually every major consumer device you can name, from smartphones and connected speakers to smart TVs, but it can’t make money either.

It reported $1.4 billion in revenue for 2017 and a loss of $518 million.