Why Spotify Shouldn't Worry About Turning A Profit Right Now
-- Did Spotify make a profit in 2010? It's a nice question, but ultimately one that doesn't matter much. The company is growing quickly and it no doubt has enough capital to keep the pace for a few years. If a music service is operating legally and paying rights holders, there are far more important metrics than net profit and net loss to measure its progress.
According to advisory and market intelligence firm Analysys Mason, Spotify turned a profit of "a few million Euros" on revenue of €59 million ($78 million) in the calendar year 2010. After paying out €45 million ($60 million) for content and an estimated €10 million ($13 million) for salaries, marketing and office costs, the company probably had a little money left over, the firm says.
If Spotify turned a profit in its first full year of operations, it would be far ahead of its predecessors. Pandora's financial statements reveal annual product development of $6 million and $7 million and $6.2 million in the first half of the current years. Napster's last quarterly filing as a public company shows a net loss of $4.4 million. Rhapsody had gained about 100,000 subscribers since spinning off from RealNetworks in January 2010 but had yet to turn a profit in June 2011, an executive told paidContent.
But as long as the Spotifys and Pandoras of the world are operating legally and paying royalties, they shouldn't be expected to operate at a profit right now. A young, well-funded Internet company needs to focus on gaining users, acquiring scale and perfecting its product. In some cases it will have to do those things while waiting for consumers and technology to catch up. If its service can gain a foothold in the marketplace, there will be a good chance to reach profitability in the future.
That's not just what Spotify should want, it's what record labels and publishers should want for Spotify, too. A music service with more users, media attention and interest from potential partners will be more valuable to rights owners than a music service with fewer of all those things. For this reason, rights holders should be most concerned that Spotify is well capitalized enough to pay advances and royalties while burning through some cash while it grows.
In fiscal 2008 and 2009, the cost of running Pandora was 242% and 128% of its revenues, respectively. Just a few years later, it went public. Imagine where it would be today if turning a profit was foremost in its mind.
MSG Entertainment Revenue Declines In Q2
-- MSG Entertainment, the concert division of the Madison Square Garden Company, reported revenue of $36 million in the second quarter of 2011, a decline of 23.1% from the prior-year period. Lower event-related revenue at the Garden and the Theater at Madison Square Garden, as a result of a schedule shutdown of those venues for a transformation project, and Radio City Music Hall were partially offset by higher revenues at the Beacon Theater. Revenues for the entire company, including MSG Media and MSG Sports, rose 3% to $233.9 million.
MSG's acquisition of the Forum in Los Angeles, first reported back in December, is not yet final, MSG president/CEO Hank Ratner said during the earnings call. As such, Ratner could only comment on the potential of the Los Angeles market. "We think that there is room there for more live entertainment."
Nor did the company comment on the possible impact of a prolonged NBA lockout that would interrupt the regular season. Last week, Bank of America Merrill Lynch downgraded MSG's stock in part because of the risk of an NBA lockout.
(Press release, Seeking Alpha)
Gift Cards Now Available For Rdio
-- Consumers can now acquire gift cards for music subscription service Rdio at the company's website and Target stores. Cards purchased at Rdio.com are available in amounts of $10, $25, $50, $100 or other user-selected amounts. Target is selling cards in two values: $10 (which can be redeemed for $12.50) and $25 (which can be redeemed for $30). The introduction of gift cards closely follows Rdio's unveiling of a "family plan" pricing package that allows up to three unique users on a single plan at a savings from a regular one-person plan.
If these pricing and distribution tactics are what stands between Rdio and more subscribers, the company will have gained a small advantage over its consumers. Both gift cards and family pricing plans are a good way to reach young consumers without credit cards. Then again, the most important factor for growth is likely to be the product itself. Rdio has an excellent product, but Billboard.biz hears it has gained far fewer than 100,000 subscribers since its June 2010 launch.
(Digital Media Wire)
350K U.S. Net High-Speed Net Subscribers In Q2: Study
-- The 350,000 U.S. net high-speed Internet subscribers added in the second quarter of 2011 was the second-lowest gain in 10 years, according to Leichtman Research Group. The second quarter tends to be slow. There were 336,000 net additions in the second quarter of 2010. In contrast, 818,000 net additional high-speed Internet subscribers were added in the third quarter of 2010 and nearly 1.3 million were added in the first quarter of 2011.
Top cable companies represented 77% of the 350,000 net additions in the second quarter. The three biggest gainers were Comcast (144,000), Time Warner Cable (67,000) and Cox (25,000). However, the top phone companies are not adding subscribers like the cable companies. They added a net 80,000 subscribers in the second quarter, an improvement from the 10,000 subscriber net loss in the same quarter in 2010. Verizon, the No. 2 telephone company in terms of subscribers, added 62,000 subscribers in the quarter. AT&T, the top telephone company (with twice the subscribers of Verizon), had a net loss of 12,000 subscribers.
Leichtman Research Group tracks the top cable and phone companies, which it says account for about 93% of subscribers.