🎧 Music: Profit sounds better with Spotify

Was this forwarded to you? Signpost is a free weekly newsletter analysing what the media says, what it means, and why it matters. It’s free to subscribe. Alternatively, you can add me on LinkedIn.

💰 Money, Money, Money

Hard to imagine, but a company that’s been around for almost two decades since 2006 with 263 million paying customers only just turned a full year’s profit in 2024. Spotify has a lot of competition; there are several global music streaming services like Apple Music, Deezer, YouTube Music, or even regional ones like Tencent Music in China, JioSaavn in India or Anghami in the Middle East. This doesn’t even take into consideration that people use YouTube (video) as an ad-supported service to listen to music.

Yet when it comes to a global cultural impact and footprint, Spotify towers above the rest. It has consistently been criticised by famous artists for its payout royalty scheme, more so than any other service, leading to the most famous person in the world Taylor Swift removing her music from the platform in 2014 (she is now one of the most streamed artists on the Spotify). When The Beatles entire catalogue was brought onboard, it made mainstream news. And of course, the year-end Spotify Wrapped feature gets more media coverage and social shares than many of the artists on the platform trying to break into the mainstream consciousness.

With all these successes, it worth asking why it took so long for Spotify to turn a full year’s profit. While it’s great news for Spotify, the company plays a pivotal role that transcends industries, namely the business and financial industry (success in streaming is notoriously hard), and the cultural industry (making money as an artist is also notoriously hard).

This issue of Signpost will look at how the story was reported in the Financial Times, one of the largest and most prestigious financial news media in the world, and in Variety, one of the largest and most prestigious trade publications in the entertainment industry.

💳 FINANCIAL TIMES: Spotify reports first annual profit as premium subscriber numbers surge [paywall]

📢 What FT is saying
The Financial Times’s relatively short and to-the-point article throws a lot of financial numbers and vocabulary at the reader. There is also a few mentions of comments from Spotify founder and CEO Daniel Ek to help buttress the story.

For all it’s jargon-ny language though, it’s actually quite a straightforward read.

1. 📸 Visuals

There are two visuals in the article. At the top, the reader is greeted by a picture of Olivia Rodrigo performing live on stage, bending forward and singing into a microphone. The caption informs us that she is performing at Glastonbury. Her microphone is purple, which matches the colour palette of her clothes, while her eyes look off into the distance. The picture is captured from her side.

The second visual is at end of the article and is a video from FT Film, titled ‘Making Music Making Money’. The text at the top of the video elaborates ‘How to make money in the music business’ to ensure we are aware of what the film is about. The visual itself is of a singer, wearing several layers of clothing, with the focus being on his blue printed bandana and his shades. It’s not immediately obvious who this is. The image is taken of him in the throes of singing.

2. ✍🏽 Words

The article is a little over 400 words long, and spends the first sentence very succinctly summarising the whole article. You could, in essence, stop there, but we will keep going. The following two paragraphs summarise the financial performance of Spotify on the stock exchange, along with their financial reporting. It includes mentions of their ‘operating income’ being ‘slightly below the company’s guidance’, and that Spotify increased their ‘paying subscribers by 11 per cent’ (which is also mentioned in the headline), and their ‘revenue per user by 5 per cent’.

The article then mentions how their total user numbers beat a Bloomberg survey of analysts. Only then does the article explain how they managed to do it - by ‘lay-offs and price increases’ and diversification into ‘podcasts, videos and audiobooks’. Between quotes from Ek, the article teases some key elements of the platform, including the recent launch of video podcasts in four markets, and Spotify’s ‘“wrapped” feature’.

❓ What it means
Sometimes the news can be dramatic. This is not one of those times. The story is delivered with such a arid focus on telling you exactly what happened, that it barely deviates from the press release. It’s almost like somebody forced FT to tell this story, like a toddler refusing to eat their vegetables.

Context is paper thin, if at all available. We don’t know why it’s been so hard for Spotify to make money, what their profitability means for the wider music industry, consumers, streaming platforms as a business model, or the artists themselves. Instead, we are cocooned with several corporate platitudes from Ek, that are more or less reprinted verbatim.

For a story about music, it feels discordant.

⚠️ Why it matters
It’s clear that to the reader of FT, the only thing that is news is that Spotify is now profitable, and like any conscientious business they want to continue to be so. Which, I suppose, is fine, but also extremely limiting. Reading this article alone will give you the impression that this is simply another day in the industry. Considering how long it took Spotify to reach here, it really isn’t.

The article focuses on Spotify as a single entity that lives in a vacuum. The truth is that Spotify not only has several competitors, but also competes against much larger companies with much deeper pockets (Apple and Google) while also looking to grow a substantially smaller industry (audiobooks) that is dominated by another tech behemoth (Amazon).

And then there’s the greater discussion of streaming as a business - how does Spotify compete against Netflix and friends? Even for a purely financial story, there are several elements that seem to be missing. This could simply be because a publication like FT, at 137 years-old, does not understand Spotify and the industry, or does not see the value in it.

🎵 VARIETY: Spotify Posts First Full-Year Profit for 2024, CEO Says Streamer Will ‘Double Down’ on Music in 2025 [link]

📢 What Variety is saying
A lot of Variety’s significantly longer article is also devoted to the minutiae of Spotify’s profitable financials. However Variety also adds some context to the challenges and successes Spotify faces, including layoffs and recent lawsuit wins.

1. 📸 Visuals

There is only one visual for the entire article - at the top we see a photo of Ek. He is wearing a pair of brown-framed glasses, a white t-shirt covered by a blueish-teal jacket. His head is clean shaven but his beard persists. He is looking directly at the camera.

2. ✍🏽 Words

The article opens with a music-related phrase, ‘Spotify hit all the right notes’, before progressing into the finer details of the financial results. Lots of numbers are mentioned, including ‘2024 earnings’, ‘shares’, ‘revenue’, ‘total monthly average users’, ‘paid subscribers’, and more.

The next paragraph then shares quotes from Ek, specifically quoting him saying that Spotify will double down on music this year. This particular quote is also mentioned in the headline (more on why below). It then tells us about ‘gross margin’, ‘operating income’, and ‘basis points’, before mid-article it highlights how Spotify managed to make a profit this year.

The article mentions that Spotify cut 20.4% of staff in 2024, resulting in a little over ‘7,261 full time employees globally, down from 9,123 at the end of 2023’. It follows this up with a quote from Ek saying that he’s excited about Spotify as a product and a business, before reiterating Spotify’s earning predictions for Q1 2025 (which will likely be lower than Q4 2024).

Towards the end of the article, we hear a few brief analytical statements from an analyst’s research note, before Variety shares a few more context providing numbers: there are 6.5M podcast titles on Spotify, of which 330,000 are video, and that last week Spotify announced that it had paid the ‘music industry’ $10B in 2024, and a total of $60B since it’s inception. The article ends with the mention of a recent agreement between Spotify and Universal Music Group, the largest music company in the world, along with a lawsuit victory for Spotify in relation to artists payment structure for Spotify’s recently introduced ‘music-audiobook “bundling” deal’.

❓ What it means
Definitely a lot more words, but thankfully, a lot more context. While much of the article is dedicated to the financial reporting, along with quotes from Ek, the article also includes information around some of the reasons why Spotify was able to hit that profitability - deep layoffs. It’s not a small amount; 20% is a fifth of the global workforce. So it can be argued that much of the profitability has been driven by cost cuts rather than any meaningful revenue generation.

It’s obvious that Spotify has served their users well. However, the article also mentions some existing controversies between Spotify and their other stakeholders, namely music artists. Referencing (and linking) to Spotify’s new controversial payment structure under their music-audiobook bundling deal means that with a little digging, we can find out that Spotify forced through this new payment structure that pays fewer royalties to artists, while raising their own prices across multiple markets in 2024.

⚠️ Why it matters
Everyone is looking for new ways to make money, and the network effect tells us that theoretically, there’s no upper limit for making money. Keep adding more users, keeping growing your revenues. As long as your product or service is dominant in the network, it is a winner-takes-all scenario.

However, the article does hint at (not overtly, but it’s definitely there) Spotify’s recent gold rush as explained by some aggressive cost cutting along with increased prices. And, at the end of the day, even if this was the reason for their profitability, it is important to remember that they did add 11M premium subscribers, and 35M users overall, in Q4 alone.

Which means, as subscribers of Spotify, we’re okay with lower royalties to our favourite artists, and people losing jobs, as long as we can listen to Joe Rogan ramble for another three hours.

Interestingly, the quote of Ek in the headline, where he commits to doubling down on music, feels like Ek trying to assure the public that he wants to empower the arts. Perhaps pay them more?

WHAT’S GOING ON? 

🎸 Rock for a fee, not for free.

If not Spotify, then whom? Even the deep pocketed Amazon, Apple, and Google cannot compete with Spotify’s stranglehold and influence on the average consumer’s understanding of music streaming, and the livelihood of music artists. I find it hard to believe that any other platform is paying musicians way more royalties than Spotify. Even if somebody is, their smaller footprint doesn’t move the needle enough for the industry.

Spotify’s health is the default indicator of the music industry, and for Spotify things are looking up. However, Spotify’s $60B worth of payouts over almost two decades is roughly $3B a year - I cannot understand how that is expected to support a global music industry. For context, Taylor Swift’s recent worldwide, 149-show Eras Tour brought in $2B in revenue (the first time that’s ever happened for any tour in history).

Despite Spotify being the sole European consumer tech success story in the world, and despite Spotify dismantling what Napster started 25 years ago, the music industry is still incredibly tough to make a living in.

Some might herald Spotify a hero for reducing piracy, others might condemn them for their trickling royalty payments to artists. The truth, as always, is somewhere in between.

Read widely. Question thoroughly. Decide accordingly.

WEEKLY POLL

LAST WEEK’S POLL

Was this forwarded to you? Signpost is a free weekly newsletter analysing what the media says, what it means, and why it matters. It’s free to subscribe. Alternatively, you can add me on LinkedIn.