They are likely not charging enough for their costs. A lot of unsustainable businesses are like that. Users love it because of the low prices and high perceived value - think Uber.
Spotify basically started as a P2P Grooveshark that promised to pay royalties. Now they are a CDN that pays royalties. The problem is that they refuse to accept the reality that there is an end to growth.
They have opportunities to leverage their massive footprint by vertically integrating. They could begin to acquire talent and exclusively release their music and prioritize it in their algorithms or forge agreements with existing labels that create this sort of arrangement. They would then have leverage to negotiate better deals with 3rd party rights holders.
In essence a type of payola since they have a lot of sway in picking winners and losers. They sort of tried this with podcasts but I’m not sure those move needles like music can.
So yeah their current model may be limited but they have a lot to work with.
They are certainly doing that. But that is only a solution to the select few who are chosen to be vertically integrated with!
They have also vertically integrated in the opposite direction: by making deals with large media corporations, and also by implementing DRM (to appease those media corporations).
So at this point, there isn't much vertical integration left to be had. Any more deals with individual artists (or labels) would really just be horizontal integration.
> So yeah their current model may be limited but they have a lot to work with.
That limit is practically the entire worldwide music industry. They are very close to that limit, and seem utterly ignorant about it.
An alternative viewpoint: Their costs are too high for what they can reasonably charge. Hence the layoffs. They could probably cut half of their workforce.
Page 1, the R&D, sales and marketing, and general and administrative expenses are probably almost all payroll expenses. And they are basically equal to or exceeding gross profit, which means payroll is a huge expense.
Why are you comparing it to their gross profit and not to the rest of their costs which is what I said?
Ultimately Spotify's staff costs are significant because they were throwing people at trying to make the podcasting business work, which was a failed bet but they need to do.
The main issue though is that buying licenses to music is just too expensive for the amount of money they charge, and they need to license less stuff or charge more money.
Because of the expenses Spotify can control, payroll is (seemingly) its biggest one. Spotify is never going to be able to reduce the proportion paid to the music owners.
They have 9500 employees. Just salaries alone at a very conservative (for american standards) 75000$ average make up 700 million dollars a year, excluding healthcare and other expenses. Payroll is definitely a huge cost.
