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Five Fascinating Takeaways From Spotify’s IPO Filing

The music-streaming giant is going public, losing tons of money, but still confident it can fund a million artists’ creative dreams

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A decade after launching in its home country of Sweden, Spotify is ready for Wall Street. The world’s most popular paid music-streaming service filed to go public on Wednesday, revealing for the first time details about its recent financial performance, its user base growth, and its customers’ listening habits. Though it’s only been available in the United States since 2011, Spotify has already survived multiple eras—first as a too-good-to-be-true replacement for piracy, then as an existential threat to artists’ livelihoods, and currently as the self-appointed savior of a resurgent music industry. Through it all, the company has been in search of a profitable business model, but its prospectus does little to show that one is on the horizon. Here are some of the key takeaways we discovered about music’s powerful but precariously positioned streaming giant. (Spotify reported financial figures in euros; they’ve been converted to dollars based on today’s exchange rate.)

Spotify’s Losses Are Mounting ...

Every time a song is streamed, Spotify has to pay royalties to record labels and music publishers. It’s a brutal business model that means success simply leads to higher costs (this is different than the Netflix model, where the company pays a flat fee to stream content for a set period of time). Spotify had an operating loss of $462 million in 2017, up from $426 million the previous year, even though its revenue increased from $3.6 billion to $5 billion during the same period. The only ways out of the conundrum are getting enough scale to negotiate better rates from labels—which Spotify managed to do last summer—or getting users to stream stuff besides licensed music, like podcasts or original videos. Spotify wants to become too big to fail, but it’s not there yet.

… But at Least It’s Still Ahead of Apple Music

Spotify now has 159 million users, including 71 million paid subscribers. Those figures dwarf its nearest competitor, Apple Music, which has 36 million subscribers and no free tier. Still, there’s some fudging going on in the calculation of the Spotify figures. That 71 million number counts each member of a Spotify family plan separately, so it’s no indication of how many people are paying the standard $10 per month for the service. Spotify’s average revenue per paying user declined from $8.61 to $6.39 over the last two years, indicating that its growing user base can’t be a direct solution to its financial challenges.

People Love Playlists

I’ve written extensively about the power of Spotify’s playlists, but this is the first time the company’s broken down just how popular they are. A whopping 68 percent of all listening on Spotify now happens in playlists. Perhaps more importantly, 31 percent of listening happens in playlists programmed directly by Spotify, such as the expert-curated RapCaviar or the algorithmically driven Discover Weekly. That figure is up from 20 percent two years ago. Spotify is rapidly transforming from a passive jukebox into an active shaper of its users’ listening experience. That gives it leverage over the labels that are increasingly trying to curry favor to appear on Spotify’s most popular playlists.

The IPO Isn’t Actually an IPO

Spotify isn’t doing a traditional IPO, in which banks sell a predetermined number of shares at a set price the night before a stock begins trading publicly. Instead, Spotify will do a direct listing, with all of the company’s shares allowed to “float” on the New York Stock Exchange until the market settles on a price. The strategy saves Spotify bank fees, allows executives to sell shares immediately (they’re often barred from cashing in for a period post-IPO), and could give everyday investors a better shot at getting Spotify shares at the same time powerful institutional investors do. But the decision could also be a red flag that Spotify doesn’t have the confidence to go out and woo major investors during a traditional pre-IPO road show.

Spotify Thinks It Can Fund a Million Artists

Here’s a bold quote from the PR portion of Spotify’s prospectus: “Our mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art.”

A thousand independent musicians just ripped up their paltry royalty statements in rage. According to multiple reports, Spotify is paying less money per stream as it grows, not more. The company revealed that it’s paid $9.8 billion in royalties to artists, music labels, and publishers since its launch a decade ago. But even if we assumed all that money was paid out in 2017, and it all went directly to artists, it would still amount to $9,800 each for one million artists—below the poverty line in the United States. Spotify remains a long way from making money, and it seems to be just as far from helping artists get properly compensated as well.