Spotify a.k.a. Money Grinder

In a recent post I expressed some unhappiness with Spotify’s lack of interest in independent artists.

While walking around in the garden with the “Computer Sweden” newspaper (August 12, 2011) I stumbled upon an article forcing me to whine more on this topic.

The Article…

…explains that the employees of Spotify are jackpot winners. The shares that Spotify offered to sell to its employees last year have increased in value from around $950’000 to $45’000’000. That is an increase of 4737% which is, of course, great news for the employees that purchased shares. I’m happy for them!

This share increase is, however, not what caught my attention. As I read on I find out that the shares rocketed in value following new investment funding injected into Spotify by Digital Sky Technologies and, Klein Perkins, and Accel.

Figures show that this year alone, investment companies have pumped in over $100’000’000 (that is $100 million) into Spotify.

At the same time the Spotify holding company, based in Luxembourg, declared a loss of $37 million in 2010 as a result of injecting funding into its own affiliates.

Golf ball on the peg – bring out the Bang-O-Matic driver

Now I’m no rocket scientist (but I do create sound effects for rocket thrusters.) but I’m going to allow myself to speculate…

A company costs money to run. You have plenty of expenses to cover for all sorts of things such as employees, research and development, IT infrastructure, procurement costs, office rental, and so forth. But seriously, $100 million have been injected in a company this year alone that, let’s face it, streams music to its users on the Internet. Sure, bandwidth costs a fair share and developing an audio player isn’t all together that complicated – it hardly justified such a high price tag.

Now Spotify generates their own income as well, from all its advertisements and premium subscribers. The number of premium, or at least paying, subscribers in July 2011 is estimated to 1.5 million out of the total number of 10 million users. This is money coming into Spotify beside the risk venture capital.

What’s at the bottom of the money grinder?

The article also describes that Spotify managed to “get rid” of a debt of $31 million by converting the debt to the affected shareholder(s) into additional shares.

Spotify is valued at over $1 billion as of August 2011. The employees that purchased their shares that are now worth $45 million leaves the remaining mystery shareholders with a share value of $6’550 million.

Independent and small artists, such as myself, kindly more or less donate our music to Spotify for them to add to their catalog. But the artists, who created the gold that Spotify is selling, get little reward for this.

My speculation is that the shareholders that own the remaining shares valued at $6.5 billion are to a large part the major record companies that so kindly offer their music to be streamed. The small amounts of royalties that are handed out “per play” is just a play for to the gallery. The BIG money to be made is by owning shares in Spotify. The major record labels that make millions through their shares also reward their top named artists, I presume, but I’m convinced that the majority is pocketed by the labels themselves.

(Reference: Computer Sweden, August 12, 2011)
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