Streaming Platforms: Profit or loss?

With internet becoming accessible to the biggest part of the world’s population, music streaming platforms found themselves growing immensely and that’s because (in most cases) they offer a wide variety of quality and free music live streaming. People no longer have to buy cds or digital copies of albums and tracks; they simply listen to their favorite music with just a click of a button. So, since those sites are growing their user bases and generating more traffic they are also earning more money, right?

The short term answer in this question is no and there is only one reason. Royalties.

Royalties is the amount of money the music streaming platforms have to pay to the record’s right holders for copyrights. So since these sites are acquiring more users, they also need to pay more royalties. One bright example of this situation is Spotify. Spotify announced a net loss of $600 million by the end of 2016, although it had grown its user base by 40% since the end of 2015. You can view Spotify’s financial review here.

So here is where another very reasonable question is generated. How do these platforms survive, since they are losing so much money? The answer is simple. These great losses are short term so that there can be benefit long term. This can be achieved through exclusive deals with record labels and music distributers so that music platforms can pay less royalties thus balancing income with expenses.

In other words, such companies are only making enough money to ensure that they won’t cease to exist until they start profiting. And that in our opinion won’t take long, as online music streaming dethroned physical and digital sales from being the #1 moneymaker for music labels.