Spotify’s UK subsidiary saw its revenue grow to £237.8 million in 2016, a significant rise on the previous year’s £187.1m.
The increase was attributed to an increase in the number of active users of the streaming service, which reached 7.1 million at the end of the year, up from 5.3m in 2015. Paid subscribers also increased from 1.7m to 2.8m.
Documents posted on Companies House revealed that subscription revenue rose from £171.7m to £215.7m. Sales of advertising also increased from £10.8m to £17.5m. Consequently, cost of sales - payments to labels and rights holders - went up from £149.2m to £166.7m, while distribution costs leapt from £3.2m to £7.7m.
“During the year our launch of the global new family plan resulted in strong subscriber growth,” said Spotify UK director Barry McCarthy in the report. “However, this strong growth did not materially impact revenue performance in the year as it was partially offset by the price reduction on the existing family plan subscriber base. We also had a strong intake of our holiday and summer campaigns, adding subscribers worldwide, in line with 2015.”
Profit after tax was £1.9m, compared with £1.2m for the previous 12 months.
“Music has mass market appeal and as such, we believe we are just at the beginning of a much larger market opportunity, benefiting from significant first mover advantages,” added McCarthy. “Subscription-only modes have not yet proven scale and free user models, whilst scaling, have not proven a path to profitability. Spotify has the combined power of both.
“Streaming music is an emerging market, which makes it difficult to evaluate our current and future prospects,” he concluded. “We face strong competition both for users, listening hours and advertiser spending, and we face competition from players with substantial resources at their disposal.
“We depend on acquiring content licenses from a limited number of major and minor content owners and other rights holders in order to provide our service. We are dependent on attracting and retaining users, and on successfully selling advertising and converting users to become paying subscribers, in order to generate sufficient revenue to be profitable.”
Spotify announced in March that it had hit 50m subscribers worldwide and had topped 60m by July.
