LOS ANGELES — Money-losing music streamer Spotify filed to go public Wednesday, with shares expected to sell on the New York Stock Exchange as SPOT.
Sweden-based Spotify is the most listened to the music subscription services. It says it has 71 million paying subscribers. Apple says its Apple Music has 36 million paying subscribers.
Unlike Apple, however, it also has a free, ad-supported service which attracted 159 million monthly active users as of December, Spotify said.
However, it noted that 90% of its revenue was produced from the monthly subscriptions. In 2017, Spotify made $4.5 billion in revenue from the $9.99 monthly subscription, compared to $511 million for the ad-supported service
And Spotify has been bleeding money badly for years.
The company said revenues amounted to $5 billion in 2017, up from $3.6 billion in 2016. Losses, however, topped $1.5 billion for 2017, from $662 million the prior year.
And Spotify is on the hook for paying out huge sums to the music industry. In the filing, Spotify said it has paid $9.8 billion in royalties to musicians through 2017.
The fact that Spotify could lose so much money, despite being the No. 1 music service, shows that’s music subscriptions is “just a bad business,” says Gene Munster, an investor and analyst with Loup Ventures.
“It’s hard to see how they will make money.”
A music subscription service gives much of the revenues to record labels, artists and music publishers, which is why, for instance, competitor Pandora has had such a hard time making a go of it, despite being around for so many years, since 2000. It reported revenue of $1.4 billion in 2017 and a loss of $518.4 million.
Music subscriptions are “great for consumers,” adds Munster, because for $9.99 you get to listen to unlimited music. “You get a lot for your dollars.” For investors, it’s another story.
Beyond the battle with Apple, other competitors include YouTube, Google, Amazon, Tidal, Pandora and SoundCloud, which all have music subscription services.
In its filing, Spotify noted that competitors have several advantages, namely in the form of connected, smart speakers that Google, Amazon and Apple manufacture. (Spotify is carried on the first two, while Apple has kept the new HomePod exclusive to Apple Music.)
The speakers create a “visibility advantage,” said Spotify.
In the lengthy F1 filing, Spotify didn’t offer much to show for how it will start making money.
It said the streaming music business is still young, and that there’s an “untapped global audience with significant growth potential,”especially in mobile.
In his letter to shareholders, co-founder and CEO Daniel Ek said he has big aspirations for Spotify.
“We envision a cultural platform where professional creators can break free of their medium’s constraints and where everyone can enjoy an immersive artistic experience that enables us to empathize with each other and to feel part of a greater whole,” he wrote.
“But to realize this vision, professional creators must be able to earn a fair living doing what they love, where monetization is at the core of a creative proposition and not an afterthought. We care deeply about our creators and our users and we believe Spotify is a win-win for both.”