How many years of Spotify access do they expect you to live? How much do they expect you to pay over the next 30 years in royalties, if they have that revenue stream?
There are two ways to answer these questions, both of which are valid. One way would have you believe that the market value of Spotify is not nearly what it is said it is. And this goes for the big streaming companies (I will get to the bigger names in a minute) as well as the music labels. For example, Spotify is claiming that it pays approximately $100,000 for each 1 million streams that it makes. The truth is that it pays significantly more – somewhere between $200,000 and $250,000 per million streams. To put in perspective, if you sell a million CDs on iTunes, and that 500,000 of those are sold in 5 years, then the yearly revenue per album is a little more than $9,000 (I used $8,000 to $9,000 since it is what I am most familiar with as a music lover). So for Spotify, it is literally paying people to stream music, rather than to buy a CD.
The other way to answer these questions would actually involve doing a little bit of math. As you might imagine, the math is a bit tricky. But let me try to sum it up for you.
First, the market value of Spotify is $17.7 billion for today’s dollars. And by my calculations, at peak earnings, that would be worth $23.8 billion. But let’s assume that the market value for Spotify is a little more than $22 billion, thus increasing the $17.7 billion to $23.8 billion, for an actual market value of $26.8 billion.
So what does that mean? If the streaming giant continues to make $13 billion a year after accounting for the $600 million a year they are not spending on advertisements and advertising revenue increases by $100 million a year, then the market cap of Spotify would actually be over $23.8 billion. That’s not bad! And I am not being overly optimistic here. While I am sure that the other music streaming companies would love to be in the top 5, I would bet that their profits for 2014 will drop off substantially in 2015 and I doubt that the top 5 will have those extra $3 billion dollars that Spotify has in 2014.
Second, my calculation also includes the estimated $1.5 million cost of legal
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