Whenever a company goes public, it’s a big shift that imposes the notoriously short-term demands of the stock market onto it. Though Spotify has been valued as high as $20 billion, it hasn’t been profitable yet; its net loss approached $600 million in 2016. While investors won’t expect Spotify to deliver a positive bottom line right away, they’ll need to see ongoing growth to the subscriber base. They’ll likely also want Spotify to show that it has ways of making money that don’t require royalty payouts to labels and artists. (It’s telling that Spotify’s two biggest competitors, Apple and YouTube, have much bigger businesses to help insulate them from market pressures.) And since what Spotify’s planning isn’t technically an IPO (but rather a rare direct listing), they won’t raise a bunch of fresh capital in the deal. Basically, don’t expect them to start throwing money at risky new projects all of a sudden—not that that’s Spotify’s usual M.O. anyway.
Whatever Spotify does, it will want the results to be more like video-streaming giant Netflix—also public, and soaring—and less like online radio pioneer Pandora, which has seen its share price tumble since its own IPO in 2011. One giant advantage Netflix has: It produces much of its own content, lowering its licensing payments. This will be a fine line for Spotify to walk, so that it doesn’t risk alienating record labels by acting too much like one itself. Read more at pitchfork.com
This is a great article that highlights the possible outcomes of Spotify’s recent announcement to go public. While not a traditional IPO, Spotify still has signaled to the world that it is here to stay and is taking the next steps to solidify its position as the world’s largest music streaming company. But as the article suggests, Spotify might expand its current offerings to venture into podcasts and direct-to-artist distribution deals to help offset its licensing and royalty costs paid to music creators. These are great steps to help diversify Spotify’s revenue streams. Who knows? Spotify may even create original programming content much like Netflix. Perhaps they will offer artists more and different ways to strengthen relationships with their fans and make more money? With the recent ruling that songwriters will be paid a higher mechanical royalty on music streams, Spotify will have to generate more revenue to achieve profitability. Hopefully, they won’t have to pass on the increased costs to its subscribers.