Even more impressively, it is happening fast.
When I keynote-interviewed Daniel Ek at SXSW 2010, he couldn’t even point to a U.S. launch date (which ended up being July 14, 2011). Now, Spotify is fairly well-entrenched here as the top music subscription that lets you use whatever technology you want (as opposed to Muve Music, which is tied to Cricket Wireless).
However, it’s not quite time to spike the football, the Swedish meatball, or whatever. As CNET points out, the company has to keep record labels, publishers, and artists happy, and it has to pay for every song it plays.
Even if Spotify adds no more subscribers, and makes zero money from advertising, Spotify will earn $684 million this year, which is why we agree with one insider who said the company could reach $1 billion in revenue in 2013 (because it will continue to add subscribers, and it does make money from advertising).
Even if it makes “just” $684 million, it expects to pay out at least $500 million in royalties, according to CNET’s briefed calculations, leaving $184 million to cover bandwidth, personnel, marketing, and who knows what other expenses.
As it adds listeners, Spotify has to pay out more money, because music is not like other digital businesses. More users doesn’t just mean more profit — it means more costs, too. Costs climb step-in-step with usage unlike, say, a site like eBay, that simply gets more profitable as people use it.
As such, the race is (still) on for Spotify to convert more users from free to paid, so that it earns more money from playing the same amount of music. As of today, it claims six million paying subscribers out of 24 million users.