Spotify, Pandora and the profits problem for streaming music

Artists like Thom Yorke are angry about meagre musician payouts, but concerns remain over long-term business models.
Streaming music service Spotify reported its financial results for 2012 this week, and they're a useful way to take the pulse of a business model – the combination of ad-supported and subscription-based streaming music – that the music industry is looking to for a revival in its fortunes.
Spotify's revenues rose 128% year on year to €434.7m (around £377.9m) in 2012, but its net losses increased from €45.4m in 2011 to €58.7m in 2012 as the company invested heavily in new countries and features for its service.
The company has never made a profit, and its losses have increased every year, although it's also true to say that its losses as a percentage of its sales have been decreasing.
In the technology world, a still-young and rapidly expanding business posting losses isn't unusual, and it's unlikely to spook many investors.
That's a good thing, given that (as it admitted in its financial results filing) Spotify may need to raise more money in the short-to-medium term to fund more growth, and hopefully profitability.
Yet Spotify has one foot in a creative industry – music – where a heated debate is raging about how well (or rather, how badly) streaming music pays off for musicians.
See the recent decision of Thom Yorke and Nigel Godrich's band Atoms for Peace to remove their albums from streaming services, and criticise them for benefiting major labels and big acts far more than new artists. The fact that Spotify is losing money may increase the tension rather than defuse it.
Its fiercer critics regularly accuse the company of being a lossmaking scheme geared entirely towards a lucrative acquisition or IPO that will enrich its shareholders – company executives, venture capital firms and major labels – while leaving artists out in the cold.
There is history here. CBS bought online radio site Last.fm for $280m in 2007: a deal that likely made major labels determined never to see a digital music service reach such a valuable exit without them having a stake again.
More recently, streaming radio service Pandora went public in 2011 with a valuation of $2.6bn, yet has since been sucked into an angry war of words with representatives of music publishers, songwriters and artists over the royalties they earn from its streams.
Critics point to Pandora's unprofitability – it reported net losses of $14m in 2008, $28.2m in 2009, $16.8m in 2010, $1.8m in 2011 and $16.1m in 2012 – while noting that executives including co-founder Tim Westergren have been making lots of money selling shares since the IPO.
(Again, this is not unusual – and if anything, applauded – within the technology industry. But in the context of ill-tempered rows about how much artists and songwriters get paid, something of a hot potato.)

Source: https://www.theguardian.com/technology/2013/aug/01/spotify-pandora-streaming-music-profits