Based on almost every metric that matters, Spotify is the most successful streaming music service in the world, with almost 90 million subscribers and close to $2 billion in annual revenues. Yet its recently-released financial results show that despite its massive success, it is still incapable of making a profit—and because of the way the music business works, it may never make one. (Fortune, 2016)

There are complaints that artists are not earning enough from streaming music services, and therefore hesitant to allow their records be made available. Yet we see that for every dollar in revenue Spotify makes, it has to give 85 cents back to the music industry in terms of fees. Last year, distribution fees and royalties were up 85%. To keep it short, costs grew more than revenues did.

But there is some positive news on the horizon, there have been rumors of an expected IPO somewhere next year, with the issue of a corporate convertible debt worth $1 billion as an early indicator. Perhaps that is the reason why Spotify is in talks with SoundCloud, an online sound platform where many (independent) artists can share their music with the world easily. (Investopedia, 2016)

Competition in the music industry is heating up. The future of digital music is at stake here, when we have tech giants like Amazon and Apple starting up their music streaming services. Independents like SoundCloud and Spotify are forced to consolidate their positions due to industry pressure from Silicon Valley. (Financial Times, 2016)

Pressure is on for both Spotify and SoundCloud. Both independent companies have their strengths and weaknesses in my eyes. SoundCloud is a digital platform where artists can exchange and listen to each other’s music. Artist can gain popularity and recognition without much effort and don’t have to pay large sums of money to recording companies as intermediaries. Typical of SoundCloud is thus that it owns the largest music catalog of all music streaming services. This could, possibly, help the service generate a profit to satisfy investors. Spotify is getting its ducks in a row for an IPO in the next year, by boosting its paid subscriber base and diversifying content through video and podcasts. (Investopedia, 2016)

Yet, despite all this neither SoundCloud nor Spotify have ever generated a profit. Is this inherent to the increasingly fragile growing music industry where artists want to be sure that they have an audience and can live off their music or is this the open platform value proposition of these companies that makes it difficult to generate a profit? According to Spotify CEO Daniel Ek: “The next decade for us is very much about ensuring that even more of these artists can live on their music, and bringing them together with a new audience,” he said. “Today our users say ‘introduce me to new music’. What the artists say is ‘help me finding my audience’. Essentially, that’s two sides of the same coin.” (Financial Times, 2016)

What does the future hold for the music industry? SoundCloud and Spotify can be seen as the Airbnb of the music industry, yet different forces in the market and the structure of the industry make it seemingly difficult to be profitable.

Financial Times, n.d. [Online]
Available at: http://www.ft.com/cms/s/0%2Fd03bedbe-85bb-11e6-8897-2359a58ac7a5.html?ft_site=falcon&desktop=true#axzz4LerydvSs
[Accessed 2 10 2016].
Fortune, n.d. [Online]
Available at: http://fortune.com/2016/05/24/spotify-financials/
[Accessed 2 10 2016].
Investopedia, n.d. [Online]
Available at: http://www.investopedia.com/news/spotify-might-buy-soundcloud-who-will-buy-spotify-aapl-amzn/?utm_campaign=dfp-ttl-ca&utm_source=market-sum&utm_term=7750430&utm_medium=email
[Accessed 2 10 2016].