Spotify are by far the biggest player in the music streaming market with over 574 million users but have a massive problem: they’ve only ever made a profit once.

Since its formation in 2006, Spotify has had a meteoric rise to near ubiquity and being the most popular way to access music, practically causing the death of the humble CD. Spotify has brought massive technological change through having music on demand yet haven’t found a way to make it pay.

Spotify brought about a revolution in music streaming as they allowed people to access unlimited music online totally legally and spelt the end of piracy services such as Napster and since then Spotify has gone from strength to strength with growing revenues year on year.

However, in the past decade, Spotify have only made a profit once as they have failed to make their business model pay. Despite growing subscriber and user numbers, Spotify has seen mounting losses as their model of paying a reported 70% of their revenues to artists and record labels leaves very little to cover their costs.

The business model employed by Spotify is inherently flawed as the more music you consume through the platform, the more it costs Spotify as they have to pay the artists and record labels per stream. Despite being known as the streaming service that pays the lowest royalties ($0.003 – $0.005 per stream), Spotify still hasn’t found a way to make it pay.

The issue of royalties is a particularly thorny one for Spotify as music streaming has made it so that artists are barely making anything out of online streaming (an artist would need 366,000 streams on a track just to make minimum wage) but Spotify would not be able to survive if they paid any more.

This became an incredibly pertinent issue in 2014 when Taylor Swift removed all her music from the platform as she believed that Spotify didn’t value the work of musicians and compensate them adequately.

Spotify’s existence is also heavily reliant on record labels who need to provide access to their library for Spotify’s service to be a decent proposition to consumers and pay a very high price for this access having paid $7 billion to labels in 2021 alone.

And as a result of their mounting losses, Spotify’s debts have been increasing massively as they continue to invest in areas of the business in the hope of achieving profitability.

Spotify’s investments can be clearly seen in the world of podcasts as they have spent over $1 billion trying to become the market leader in this area with major signings such as Michelle Obama, Joe Rogan and Meghan & Harry.

Spotify was aiming for podcasts to become a solution to the royalties problem as producing their own content means that they wouldn’t incur additional costs every time someone listened however in the first six months of 2023 Spotify lost $500 million suggesting that this strategy isn’t paying off.

Spotify’s persistent losses is becoming a problem for its shareholders as they have long been told that Spotify have been prioritising growth over profit (not dissimilarly to most tech companies) however it now seems that Spotify do not have a viable business model despite a string of price rises thus leaving the question of how much longer investors will wait for returns.

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