Tuesday, November 13, 2012

Spotify will only lose $40 million this year. (Yes, that's considered a success.)


Spotify, the streaming music startup, was having serious trouble paying its bills, if you believed reports from earlier this year. Its 2011 financials showed a loss of nearly $60 million on revenues of $244 million. But it made $200 million in total revenue over the first six months of 2012, and is on an annual run-rate that could put it around $500 million by January.

 Its deal structure with the labels requires either a $200 million annual payment, like what it had to do last year, or around 75% of total revenue (whichever is higher). 2012 will be the first year that revenue is high enough for the percentage structure to kick in.

The company is projecting profit after cost-of-sales to be around $60 million. It still has another $100 million in engineering, marketing, sales and other operating costs, on top of the licensing burden, so it’ll likely post an annual lo

ss of roughly $40 million.

The situation still sounds painful, but it’s not bad at all. The record labels are happy with Spotify’s progress so far because internal data has shown that it is growing the digital music market; the company is working on a large new round of funding — more than $100 million at a $3.25 billion valuation, according to a Wall Street Journal article; and it's building a browser-based version of its desktop software.

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