How does Spotify make money?

By   |   Verified by Andrew Boyd   |   Published 26th April 2022

How Spotify Makes Money
  • Spotify is one of the biggest online entertainment platforms, with a huge listing of music artists and podcasters contributing to its content library.
  • In 2020, Spotify paid podcaster Joe Rogan north of $100 million for the exclusive rights to the Joe Rogan Experience.
  • Spotify makes money by charging subscription fees for premium accounts and in-app advertising on regular accounts.

Daniel Ek and Martin Lorentzon founded Spotify in April 2006, with headquarters in Stockholm, Sweden. Spotify employs more than 5,500 people across 15 international offices. The company has more than 406-million users, with more than 180-million premium accounts registered on its platform. The service is available in more than 178 countries worldwide.

Spotify was listed on the NYSE in April 2018 in a direct listing IPO under the ticker $SPOT. At the time of its listing, Spotify shares were trading at $132.00 per share. The company was listed with a share price of $165.90 per share, 25.7% higher than its reference price by the NYSE.

What does Spotify do?

Spotify is a digital entertainment platform offering users the chance to listen to music and their favorite podcasts. The site provides audio and video streaming services, providing content from leading music artists and podcasters.

Spotify operates a freemium business model, generating income through in-app advertising on free accounts and subscription fees from its add-free premium accounts. Spotify offers flexible advertising plans for its partners, matching the partner's operations and the size of its business.

The company offers an undated catalog of music from top-performing artists. It licenses the artist's catalog or buys it outright from the record label or the artist themselves. It also offers an audio-visual experience through its extensive podcasting catalog.

How does Spotify work?

Spotify operates an online streaming platform hosting a massive audio and video content catalog. Users can stream high-quality music and video with ads on free accounts and an ad-free experience with its premium account subscription.

Advertisers utilize Spotify's suite of advertising tools to enhance their reach in their target market and build their audience. Creators can set up an account on the "Spotify ad studio," allowing them to target a specific demographic and target audience.

How Spotify makes money

Spotify makes money by utilizing a diverse business model. The company earns through offering premium account subscriptions to users and through its in-app advertising on free accounts. Let's look at the Spotify business model in detail.

Premium subscriptions

Spotify operates a "freemium" business model. Users can choose to open a free account and start viewing content. However, users have to register for a premium account if they want an ad-free experience. Spotify charges $9.99 for a premium account, with options for student accounts at $5 per month and family plans for $14.99 per month.

Its premium accounts account for its largest revenue share, with more than 180-million premium users subscribed to the platform. Premium users can consume content without the hassle of ads interfering with their experience. Premium users also have the option of offline playback and flexible playback modes with unlimited skips.

In-app advertising

Spotify offers free account registration for users. To facilitate the freemium business model, Spotify publishes in-app advertising. The company charges brands and businesses for promoting their ads on its site.

Spotify advertisers receive options for banner ads and video ads, using a similar model to YouTube. Users have to watch a large portion of the advertisement before accessing the content they can listen to or view on its platform.

Future growth engine

Spotify is a leading brand in the online streaming market, covering music and podcasts. It broke entertainment records by being the first platform to offer podcasters exclusive licensing deals to hos their content on its platform.

The company made headlines when it acquired the rights to the world's most-watched podcast, "Joe Rogan Experience," with more than 11-million views per episode. Spotify paid Rogan a staggering 100-million+ for the exclusive rights to his show, pulling it off YouTube.

Competitors

Spotify competes with other online streaming services offering music and podcasts. Apple Music is the company's biggest competitor, and it's slowly eating into Spotify's market share. Some of its top competitors include the following companies.

  • SoundCloud
  • YouTube
  • Apple Music
  • Amazon Music
  • Tencent Music
  • Pandora