The Radio Edit Decodes: Spotify’s results (and that $10BN)

An update on last week's analysis and a look at Spotify's future growth.

Last week I dropped the first subscriber-only post for The Radio Edit. Part of an article series called Decodes, it looked at Spotify’s $10 BN to the music industry in 2024 press release in which the streaming service publicised some data from 2024.

This release was curiously timed as it included specific financial information yet was distributed a week before their fourth quarter and ’24 full year financial results. Those results have now been published. I summarise last week’s findings, updated to reflect this recently-distributed investor material:

· Spotify’s revenue has grown 14.6 times since 2014. Payouts to the music industry has grown 10.6 times in the same period.

· Content costs as a percentage of revenue (i.e. the inverse of gross margin) for ’24 was 68%; it was 74% in 2023 and 82% in 2014.

· That $10BN contribution to the music industry is approximately €9.3BN (the Euro is the currency Spotify accounts in).

· The actual figure for all content costs for ’24 was €11BN. Taking out the $10BN /€9.3BN, €1.7BN was paid in non-music costs; 15% of the total. I overestimated this in last week’s piece.

· Per subscriber, Spotify paid €35.3 to the music industry in ’24 out of a total of €41.8 per subscriber content costs. In 2014, Spotify paid out €59 per subscriber.

· Spotify paid out 40% less per subscriber to the music industry in 2024 than it did in 2014, and 29% less in total content costs.

· Over 10K artists generated over $100,000 in royalties, a tenfold increase in royalties for the top 10K since 2014; but if we assumed all of Chartmetrics’ 11MM tracked artists had music on Spotify, that 10K would represent less than 0.1% of all artists.

· Generated does not equal cash in pocket for an artist. Assuming distribution fees, a (generous) 50% royalty split, no advance to recoup and no deductions, an artist generating $100K would end up with just over $40K.

What’s remarkable, now the data is out there, is the shift in gross margin – a more than five percentage point swing upwards; a 1.4BN (39%) increase in gross profits year on year. The much-discussed issue of a change in mechanical royalty payments driven by bundling books into subscriptions was supposedly worth $150MM, or €140MM – just 10% of the saving in gross profit.