Spotify announces record profits and margins after cutting royalty rates
Spotify has announced record profits and a huge jump in its gross margin for the second quarter of 2024 – after implementing a change that lowers artist royalties.
The streaming giant saw subscribers jump 12% year-on-year to reach 246 million, while total revenue was up 20% to €3.8 billion (A$6.24b), and the gross margin hitting 29.2%.
“It’s an exciting time at Spotify. We keep on innovating and showing that we aren’t just a great product, but increasingly also a great business,” said CEO Daniel Ek.
“We are doing so on a timeline that has exceeded even our own expectations. This all bodes very well for the future.”
The gross margin increase in particular will draw ire, given Spotify recently changed the way it pays out mechanical royalties in the US by re-classifying its Premium plans as ‘bundles’ — as they include audiobooks and music — which then allows it to pay out a lower rate than for a standalone subscription with just music.
This change happened in mid-April (during week three of Q2) with a Spotify spokesperson announcing at the time: “As our industry partners are aware, changes in our product portfolio mean that we are paying out in different ways based on terms agreed to by both streaming services and publishers.
“Multiple DSPs have long paid a lower rate for bundles versus a stand-alone music subscription, and our approach is consistent.”
This certainly helped the gross margins for the Premium tier, which jumped to 31.4%, and dragged the company’s overall earnings up, all thanks to what Spotify calls “improvements in music profitability”.
This news was met with division, with American peak body, the National Music Publishers Association, slamming the move.
“It appears Spotify has returned to attacking the very songwriters who make its business possible,” NMPA president and CEO David Israelite told trade publication Music Business Worldwide after the decision was announced.
“Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, and potentially unlawful, move that ends our period of relative peace.”
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We really need to stop screwing over artists. They deserve to be paid their royalties. It was barely anything to start with.
Support the artists – Spotify is nothing without them.
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How sustainable is the increase in gross margin?
After two separate $2 increases (a greedy 25%) in just six months I canned my premium duo service. It seems the increase is to fund audiobooks – a service I don’t want and won’t use.
And all the while they’ re attempting to further screw down artists.
The other family member on our duo service saw better value in YT Music and went there – they’re very happy and they’re not coming back to Spotify.
I’m currently bumming it on Spotify free. If Spotify introduce a paid Basic service with just music in Australia I might come back.
But if not I’ll soon be looking for a new *music only* streaming service.
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