Spotify Methods through Which It’s Make Money

Oct 25, 2023 By Susan Kelly

The audio-streaming subscription service's legal headquarters, Spotify Technology S.A. (SPOT), is situated in Luxembourg. At the same time, the firm was founded and is still headquartered in Stockholm, Sweden. Both paid premium memberships and advertising are used to generate revenue for the company's streaming services, which are referred to, formally speaking, as the Premium Services segment and the Ad-Supported Services segment, respectively.

As of December 31, 2021, Spotify has 406 million monthly active users (MAUs) and 180 million premium subscribers. The company has a presence in 184 countries and territories throughout the world. Apple Inc. (NASDAQ: AAPL), Inc. (NASDAQ: AMZN), and Google, whose parent firm is Alphabet Inc., are just a few examples of the business's most formidable rivals (GOOGL). Spotify is at a big disadvantage compared to its competitors since the firm does not provide hardware with preinstalled versions of its music streaming service. This puts the company at a significant disadvantage in the marketplace.

The Financial Situation Of Spotify

The Securities and Exchange Commission (SEC) of the United States receives financial statements from Spotify; but, since the firm is a foreign organization, it is not obligated to submit those statements in line with Generally Accepted Accounting Principles (GAAP). Instead, Spotify organizes its information to comply with the International Financial Reporting Standards (IFRS), which were published by the International Accounting Standards Board (IASB).

Early in February, Spotify disclosed the financial results of its 2021 fiscal year (F.Y.), which came to a close on December 31, 2021. The corporation recorded a considerable reduction from the previous year's net loss of €581 million as a net loss of €34 million ($38 million). Annual sales grew 22.7 percent to €9.7 billion.

The Commercial Divisions Of Spotify

Premium Services and Ad-Supported Services are the two primary business pillars that Spotify relies on to generate revenue from its streaming offerings. The revenue and gross profit of the firm are broken down into their respective segments. During the fiscal year 2021, Spotify generated a consolidated gross profit of €2.6 billion, corresponding to a consolidated gross margin of 27%.

Premium Services

Members of Spotify may stream music for free or for a monthly fee, depending on their preferences. However, paid users, also known as Premium Subscribers, can have unrestricted access to Spotify's complete repertoire of music and podcasts, online and offline, without listening to advertisements. Premium Subscribers get access to all of Spotify's music and podcasts. Subscription fees are the primary means through which Spotify's Premium Service division brings in Money for the company.

The Premium Services sector of Spotify's business reported revenue of €8.5 billion in F.Y. 2021, representing an increase of 18.6 percent compared to the revenue reported in F.Y. 2020. The segment accounted for approximately 88 percent of the entire revenue. The company's gross profit increased by 23.1% throughout the year, reaching €2.5 billion and accounting for more than 95% of the total.

Supported By Advertisements

Users of Spotify who do not pay for premium membership can still enjoy the ad-supported services that Spotify provides. These users receive on-demand online access to a limited portion of the company's music repertoire, but they have unrestricted online access to the company's podcast catalog. Users will see commercials at various points during their streaming experience. Most of the income from Spotify's Ad-Supported Services section comes from the sale of advertisements shown throughout the company's music and podcast content.

Compared to F.Y. 2020, the Ad-Supported Services division of Spotify's fiscal year 2021 reported revenue of €1.2 billion, representing a 62.1 percent increase. The division was responsible for more than 12 percent of the total revenue generated by the firm. Its gross profit increased by about 20 times, reaching 117 million euros and accounting for around 5 percent of the total for the year.

Recent Changes and Improvements Made to Spotify

CNBC reported on March 28, 2022, that Spotify's COVID content advice tab, which the business initially revealed in late January, was now displayed on the firm's podcasts and other material that mentioned COVID-19. Spotify announced for the first time in late January. Users are sent to Spotify's information portal on COVID-19 when they click on the tab. As a result of Spotify's broadcast of Joe Rogan's podcast "The Joe Rogan Experience," several artists and content producers chose to refrain from using the platform, which led to the company's consideration of adding the tab. According to the artists and creators participating in the boycott, Rogan's show has been spreading false information about the COVID-19 vaccination.

Spotify announced it was purchasing Podsights and Chartable, two firms that specialize in podcast technology, on February 16, 2022. Podsights offers marketers tools that improve their ability to monitor and expand their podcast audiences. Chartable is a provider of analytics solutions that assist publishers in better understanding their podcast listeners and growing those audiences. The monetary particulars of the transaction were not made public.

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