Spotify is an online audio streaming platform domiciled in Luxembourg.
Spotify AB, which owns the Spotify audio streaming platform, is a publicly traded company listed on the New York Stock Exchange.
In this post we will discuss the business model of Spotify and try and understand how Spotify makes money.
Spotify Revenue Model:
As discussed above, Spotify is an online audio streaming platform with a vast catalog of music and podcasts content.
To offer the streaming service to its users, Spotify needs to first acquire the rights to stream music and other audio content on its platform from the respective right holders; by paying a royalty fee.
Typically, Spotify enters into agreements with record labels, music publishers, and other rights holders including independent artists for the right to stream their audio content on its platform.
Spotify has two categories of users – premium and free users; and operates under a revenue model which is known as a Freemium revenue model.
Under the Freemium model the company offers two categories of services – premium and free.
Under the premium service, Spotify provides users with unlimited online and offline streaming access to its entire catalog of music and podcasts. To access the premium service, a user has to pay a recurring subscription fee. A premium subscriber, is offered a music experience without any commercial or advertisement breaks.
The free service, does not require the payment of any subscription fees and is ad-supported.
Spotify generate revenue for the Ad-Supported segment from the sale of display, audio, and video advertising delivered through advertising impressions across its music and podcast content.
A free user has a limited online streaming access to the music library and unlike the premium user does not have any offline access to the content.
As of September 30 2020, the company had about 320 million active monthly users on its platform of which 144 million were paying subscribers. If we translate this into percentage we see that about 45% of Spotify’s total users are paying subscribers.
This is indeed a very good sign for the company which shows that users are deriving value from the service it offers and are prepared to pay a premium for it.
It is also no surprise that revenue from subscriptions account for a majority of the revenues for the company. For the three months ended September 30, 2020 the total revenue of the company stood at 1,975 Million Euros. Of this the revenue from the premium segment was at 1,790 Million Euros – which is about 90% of the total revenues of the company.
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Hope you liked our discussion on the revenue model of Spotify. You might also be interested in the revenue model of Snapchat
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