Ethan Smith in the Wall Street Journal on where the money comes from (and goes) at Spotify:
Even though free users outnumber paying subscribers by about three to one, the free tier generated only 9% of Spotify’s $1 billion-plus revenue last year; the rest came from subscription fees, according to a financial disclosure Spotify filed last month in Luxembourg.
The two tiers generate roughly the same amount of total listening in any given month, according to data shared with publishers. (Subscribers—who presumably want to get their money’s worth—tend to listen to a lot more music than free users.) In March, that amounted to over 4 billion streams each on Spotify Free and Spotify Premium in the U.S. alone, where online music companies have to share certain usage and royalty data with music publishers.
There’s quite a bit of fascinating math in the article, but it really boils down to those two paragraphs. Half of the songs played on Spotify result in just 9% of the revenue. That might sound a little crazy to you. This is the world’s most successful streaming music platform? Almost all the money comes from the streaming activity of a small number of users.
Well, compared to freemium games, that’s nothing. Last year, a report on monetization in mobile games found that the average freemium game makes half its revenue from 0.15% of all players. That’s not a typo. That’s a fraction of one percent providing half the revenue. Re/code’s Eric Johnson noted:
At a conference I attended last year, a representative of a gaming company — who declined to be named or interviewed for a story — claimed that his firm had worked with a Japanese game company with one player who spent about $10,000 per month on in-app purchases. The company, he said, had assigned an employee to cater just to that whale, to ensure that she was always satisfied with the game and therefore likely to keep coming back.
I’ve got it! Spotify just needs to introduce a $10,000 per month plan, for crazy rich folks. Bam. Problem solved. The world is saved, and Taylor Swift puts her music back on Spotify.