Spotify's rising revenues gobbled by royalties blackhole

Streaming services face a brutal few months, but leader Spotify can at least point to solid revenue. Spotify UK, which was responsible for the bulk of the music company’s global business until last month, saw its revenues increase to £63.17m in 2010, up from £11.32m in 2009, the first year of its rollout.

According to its latest financial report, £45m came from subscriptions and £18m from advertising. Spotify created a huge demand for its free service, spread by word of mouth, in its first six months of its launch, but rapidly applied the tourniquet and steered users to paid-for packages ranging from 99p for a day to a tenner a month. Losses were substantial: on top of other expenses, it spent £64m on licensing music from rights-holders, leaving it with a pre-tax loss of £26.54m, compared to £16.61m in 2009.

Spotify has hitched its fortunes to Facebook in the US as a non-exclusive music partner, but reaped the lion’s share of uptake. US-based Rdio beat Spotify to its US launch but has been obliged to go ad-free for a limited period.

Now compare Spotify’s fortunes with the former streaming music pinup turned ghost site, Last.fm. The darling of Shoreditch, Last.fm has never made a profit and earned just £7.3m in 2010. That’s 74 per cent up from the previous year, but after eight years of operation, the company still can’t make a profit. Losses were £2.8m before tax, thanks to much lower staff costs. CBS snapped up the Silicon Roundabout stars for $280m. ®