spotify-revenue

Spotify Revenue

Business / By / June 7, 2023
YearPremium Members RevenueAd-Supported Revenue
2021€8.46B€1.2B
2022€10.25B€1.47B
FourWeekMBA Intelligence – Source data: Financials

In 2022, Spotify had 489 million users, 295 premium members and 205 million ad-supported members.

spotify premium users

Spotify’s cost structure is quite interesting because the premium side of the business is run at wide margins (28% in 2022), and the ad-supported business while it works as a funnel for the company (most premium members were free users before); it’s self-sustaining.

In fact, in 2022, while the ad-supported segment generated only $30 million in revenue, it was still profitable!

spotify-cost-structure

This is critical to understand the economics of Spotify’s business model, where the ad-supported segment works as a funnel, which channels millions of free users (to turn into premium members) into the company.

And yet, once the free users have been turned into premium members, the funnel reinforces itself, as premium members have a very slow churn rate (premium members stay a long time).

licensing-model-spotify
Spotify licensing deals affect its business model. The company runs on both a free service, which is ad-supported and a subscription premium service. They have different economics. The ad-supported business had a 10% gross margin in 2021, compared to 29% of the subscription-based business. That’s because the more the content gets streamed on the platform, the more that increases royalty costs for Spotify. That is also why the company invested in developing its content. Thus, in part transitioning from platform to brand.

In addition, Spotify has been strengthening its ad-supported platform in the last years, thus, we might see this segment becoming even more important in the coming years.

spotify-audience-network
Spotify Audience Network is the underlying advertising infrastructure that supports its ad-supported user base. The Spotify Audience Network was born as the result of the acquisitions of Anchor and Megaphone. By 2022, Spotify had 273 million ad-supported users.

Spotify is probably one of the most successful examples of the freemium business model.

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Read Also: How Does Spotify Make Money, Spotify Model, Who Owns Spotify, How Does Twitch Make Money, How Does SoundCloud Make Money, Who is Daniel Ek?, Who Is Martin Lorentzon?

Related Visual Stories

Spotify Business Model

spotify-business-model
Spotify is a two-sided marketplace, running a free ad-supported service and a paid membership. Founded in 2008 with the belief that music should be universally accessible, it generated €11.7 billion in 2022. Of these revenues, 87.4% or €10.25 billion came from premium memberships, while over 12.6% or €1.47 billion came from ad-supported members. By 2022, Spotify had 489 million users, of which 205 million premium members and 295 million ad-supported users.

Spotify Advertising Business Model

spotify-audience-network
Spotify Audience Network is the underlying advertising infrastructure that supports its ad-supported user base. The Spotify Audience Network was born as the result of the acquisitions of Anchor and Megaphone. By 2022, Spotify had 273 million ad-supported users.

Economics of the Spotify Business Model

licensing-model-spotify
Spotify licensing deals affect its business model. The company runs on both a free service, which is ad-supported and a subscription premium service. They have different economics. The ad-supported business had a 10% gross margin in 2021, compared to 29% of the subscription-based business. That’s because the more the content gets streamed on the platform, the more that increases royalty costs for Spotify. That is also why the company invested in developing its content. Thus, in part transitioning from platform to brand.
spotify-model
The Spotify Model is an autonomous approach to scaling agile, focusing on culture communication, accountability, and quality. The Spotify model was first recognized in 2012 after Henrik Kniberg, and Anders Ivarsson released a white paper detailing how streaming company Spotify approached agility. Therefore, the Spotify model represents an evolution of agile.

Who Owns Spotify

who-owns-spotify
The multi-billion music streaming company Spotify is primarily owned by its founders, Daniel Ek and Martin Lorentzon. As of 2022, Daniel Ek has 16.5% ownership of ordinary shares and 31.7% of the voting power. Martin Lorentzon has 10.9% of ordinary shares and 42.6% of the voting power. Another key shareholder is Baillie Gifford & Co, a Scottish-based money management firm, followed by Morgan Stanley, T. Rowe Price, and Tencent.

Spotify Revenue

spotify-ad-revenue

Spotify Users

Spotify Free Users

Is Spotify Profitable?

is-spotify-profitable
Spotify is not profitable. The company’s net loss in 2022 was €430 million, compared to €34 million in losses in 2021, and €581 million net losses in 2020.

Spotify Cost Structure

spotify-cost-structure

Spotify ARPU

spotify-arpu

More Resources

About The Author

Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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