The first profit in the history of Western streaming services: why it is not so good news

European and American streaming services remain unprofitable. Only in 201? one of them showed a profit. This pioneer was Spotify. In the Swedish company, however, do not celebrate the triumph. We delve into how Spotify made a profit, why it reacted to its achievement with coolness and what prevents streaming services from getting a plus.
The first profit in the history of Western streaming services: why it is not so good news 3r311.
3r3128. 3r3189. Photo Sunil Soundarapandian / CC BY [/i]
3r3-33160. Why streaming platforms are not profitable 3r3r1616.
Despite popularity among users, streaming platforms are losing money. Moreover, financial problems face a variety of services: from the niche 3r3331. Tidal
to the giants Spotify and Apple Music.
Some companies do not meet the ends because of the imperfection of monetization models. SoundCloud does not bring profit for the past ten years. At first, the startup tried to follow the path of Spotify and sell subscriptions, but did not gain a sufficient subscriber base and almost went bankrupt. Now SoundCloud is trying to make money on services for musicians. However, so far this has not brought the company a plus.
Pandora has a similar situation. Until 201? only “radio stations” were available in the service by genre or by the manner of individual performers, and the listener could not play specific songs and albums at will, which was 3r3433. led to an outflow of the audience
. Recently, the platform introduced the ability to listen to music of their choice, but the moment was lost. User activity in Pandora continues decline, and most of them do not pay a subscription.
Another reason for the lack of profit - the cost of paying music labels. Apple Music and Spotify came across it: the second 3r3351. spends
on royalty and at all about 80% of income .
For Apple Music, short-run profit is less important. The main task of the product is to attract users to the Apple ecosystem. However, with Spotify, the issue of earnings is acute.
The Swedish company worked at a loss from the very start: in the year it lost up to 3r3633. one and a half billion r3r3215. dollars. It would seem that the first profit in the history of the service should have inspired the leadership of Spotify, but not everything is so simple.
3r3-33160. How Spotify Profit
3r33170. According to financial 3r3119. report
for the third quarter of 201? Spotify really managed to get a plus. The organization announced a net profit of € 43 million. Although this amount is only 3.2% of Spotify's turnover, Q3 financial results were better compared to the first two: since the beginning of 201? the company has lost $ 563 million in 3r-3212.  
For 201? its loss resulted in € ??? billion 3r3-33175.
The reason for the unexpected profitability "in the moment" is a reduction in costs. Compared to the previous quarter, Spotify spent less money on developing new features and marketing. Also, according to the company's CEO, Daniel Ek, the costs are 3r3113. decreased r3r3215. because of the reduction in the number of employees.
In addition, there are other prerequisites for potential growth. For example, getting a share in Tencent Music (China). In 201? these two companies exchanged minority stakes of their shares, as a result, Spotify now has 9.1% Tencent Music, and the latter has a 7.5% share in Spotify. In the third quarter of 201? the Chinese organization submitted an application for an IPO in the United States. Prior to that, she reassessed her value, which is led to an increase in the price share of Spotify.
3r3-33160. Why is the company dissatisfied with the financial situation 3-3-3161.
Spotify does not express enthusiasm for these financial indicators. We are talking only about the third quarter, so there’s no way to talk about a plus for the year.
3r33170. In fact, the Swedish company 3r3r104. continues
to lose money. This is negative 3r3106. influenced
on investors' attitude to its securities: several large financial institutions, such as Goldman Sachs, lowered 3–3–3108. target price is
Spotify shares. 3r? 3175.
It is expected that following the results of the IV quarter of 201? the company will again go to minus. Including because invests in the development of new functionality. According to Spotify CFO Barry McCarthy, this is her top priority.
The financial situation of the Swedish music giant threatens to deteriorate in the long term. The company expects a fall in average revenue per user (ARPU) due to rising popularity in the markets of Latin America and Southeast Asia (see p. 3 of its 3-3-3119. Report 3-333215.). There are popular cheap rates for students and family subscriptions to the service.
3r3128. 3r3189. Photo Paul van de Velde / CC BY [/i]
3r3-33160. What Spotify will do
In the near future, the company hopes to start making more money by developing its own product. Possible points of growth are advertising and podcasts.
Advertisers Spotify plans to to attract technology to automatically place ads Ad Studio, which is designed to provide more effective advertising targeting. The company expects this to increase the demand for advertising.
Podcasts are interesting to streaming service by the fact that increase time spent by users in the application, and hence the number of advertisements per listener. Moreover, releasing podcasts is cheaper than buying license rights to use music. While Spotify users spend on this format only 1% of the total time in the service, but the company plans to increase this figure.
3r3-33160. Conclusions 3r3161.
Multi-million Army Subscribers Do not help Streaming services to get a plus in the short term: too much money companies spend on royalties.
3r33170. The financial situation of Spotify and Apple Music may deteriorate even more with the introduction of new laws in favor of performers. In the USA, they recently accepted r3r3171. Music Modernization Act
which will oblige streaming platforms to pay more to musicians. Although Spotify and Pandora supported That law is not yet clear how it will affect the well-being of companies. 3r? 3175.
A way out of this situation for services can be podcasts. Today, they are already are attracted to major advertisers, such as Chanel and BMW, and bring more and more money to the authors. In addition to Spotify, podcasts are being developed by Pandora: company. developed new recommendation algorithm for audio shows.
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