Spotify Technology S.A., together with its subsidiaries (Spotify), provides audio streaming subscription service worldwide.
The company had a community of 675 million monthly active users (MAUs) and 263 million Premium Subscribers across 184 countries and territories as of December 31, 2024. Spotify has transformed the way people access and enjoy music, podcasts, and audiobooks.
The company has transformed the music industry by allowing users to move from a ‘transaction-based’ experience of bu...
Spotify Technology S.A., together with its subsidiaries (Spotify), provides audio streaming subscription service worldwide.
The company had a community of 675 million monthly active users (MAUs) and 263 million Premium Subscribers across 184 countries and territories as of December 31, 2024. Spotify has transformed the way people access and enjoy music, podcasts, and audiobooks.
The company has transformed the music industry by allowing users to move from a ‘transaction-based’ experience of buying and owning music to an ‘access-based’ model, which allows users to stream music on demand. The company has expanded its podcast offerings and helped advance the growth of the podcast industry by making significant investments in content, giving podcasters scale via its large user base established in music, and enhancing the podcast discovery experience. Since 2022, the company further expanded its offerings to help drive audiobook adoption among its users and grow the earnings potential of authors, including by bringing elements of its revolutionary music access model to the audiobooks landscape.
The company is actively investing in other forms of content to complement the music library available through its platform, including video.
The company continues to build a two-sided marketplace for users and creators, which leverages its platform relationships, data analytics, and software. The company has been instrumental in reshaping the way in which its users enjoy, discover, and share audio content. With its marketplace strategy, the company is empowering creators by offering unique insights and developing new tools designed to give creators more power and control and by unlocking new monetization opportunities for creators and more ways to connect with fans. Spotify is uniquely positioned to offer creators and fans access to one another, and to provide creators with analytics and tools to help them better understand their fans, to support themselves, and to effectively monetize their creative work.
Business Model
The company offers both Premium and Ad-Supported Services to its customers. The company’s Premium and Ad-Supported Services live independently but thrive together. The company this business model has allowed it to achieve scale with attractive unit economics and is a critical part of its success. The company’s Ad-Supported Service serves as a funnel, driving a significant portion of its total gross added Premium Subscribers. The company’s Ad-Supported Service is a strong and viable stand-alone product with considerable long-term opportunity for growth in Ad-Supported Users and revenue.
The company is in 184 countries and territories. On a geographic basis, all four of its major regions are growing.
The company’s Ad-Supported Users and Premium Subscribers spend significant time engaging with its Service. Combined, the company audiences streamed 190 billion hours of content for the year ended December 31, 2024.
Premium Service
The company’s Premium Service provides users with unlimited online and offline high-quality streaming access to its catalog of music and podcasts. In select markets, the Premium Service provides eligible users with limited online and offline streaming access to the company’s catalog of audiobooks. In addition to accessing the company’s catalog on computers, tablets, and mobile devices, users can connect through speakers, receivers, televisions, cars, game consoles, and smart devices. The Premium Service offers a music listening experience without commercial breaks.
As part of the company’s Subscription Offerings, it also offers a Basic plan to eligible users in select markets that provides certain benefits of the Premium Service without the monthly audiobook listening time and an Audiobook Access Tier in the United States (U.S.) that provides specified hours of audiobook access a month without all of the benefits of the Premium Service.
The company generates revenue for its Premium segment through the sale of subscriptions to the Subscription Offerings. The Subscription Offerings are primarily sold directly to end users. The Premium Service is also sold through partners who are generally telecommunications companies that bundle the subscription with their own services or collect payment for the stand-alone subscriptions from their end customers. Premium partner subscription revenue is based on a per-subscriber rate in a negotiated partner agreement. The company also bundles the Premium Service with other services.
The company offers a variety of subscription pricing plans for its Premium Service and Basic plan, including its Standard Plan, Family Plan, Duo Plan, and Student Plan, among others, to appeal to users with different lifestyles and across various demographics and age groups. The company is pricing varies by plan and is adapted to each local market to align with consumer purchasing power, general cost levels, and willingness to pay for an audio service. The company’s Family Plan consists of one primary Premium Subscriber and up to five additional sub-accounts, allowing up to six Premium Subscribers per Family Plan subscription. The company’s Duo Plan consists of one primary subscriber and one additional sub-account, allowing up to two Premium Subscribers per Duo Plan subscription.
In addition, as the company has entered into new markets where recurring subscription services are less common, it has expanded its subscription products to include prepaid options and durations other than monthly (both longer and shorter durations), as well as expanded payment options.
Revenue from the company’s Premium segment is a function of the price of its Subscription Offerings and the number of subscribers who subscribe to its Subscription Offerings. As of December 31, 2024, the company had 263 million Premium Subscribers, respectively. New Premium Subscribers are primarily sourced from the conversion of the company’s Ad-Supported Users. Through both its online platform and external marketing efforts, the company engages its Ad-Supported Users by highlighting key features that encourage conversion to its subscription offerings. These efforts include product links, campaigns targeting existing users, and performance marketing across leading social media platforms. Additionally, new subscriber growth is also driven by the success of converting users from the company’s trial programs to full-time Premium Subscribers. These trial campaigns typically offer certain features of the company’s Premium Service for free or at a discounted price for a period of time.
Ad-Supported Service
The company’s Ad-Supported Service has no subscription fees and generally provides Ad-Supported Users with limited on-demand online access to its catalog of music and unlimited online access to its catalog of podcasts on their computers, tablets, mobile devices, and other smart devices. The company’s Ad-Supported Service serves as both a Premium Subscriber acquisition channel and a robust option for users who are unable or unwilling to pay a monthly subscription fee but still want to enjoy access to a wide variety of high-quality audio content.
The company generates revenue for its Ad-Supported segment primarily from the sale of display, audio, and video advertising delivered through advertising impressions. The company enters into arrangements with advertising agencies that purchase advertising on behalf of their clients, and it also enters into arrangements directly with some large advertisers. These advertising arrangements are typically sold on a cost-per-thousand impressions (‘CPM’) basis and are evidenced by contracts that specify the terms of the arrangement, such as the type of advertising product, pricing, insertion dates, and number of impressions in a stated period (‘Insertion Order’). Additionally, the company generates revenue through arrangements with certain advertising automated exchanges, an internal self-serve platform, and advertising marketplace programs to distribute advertising inventory for purchase on an auction or fixed CPM basis. These advertising arrangements typically specify the type of advertising product, pricing, insertion dates, and number of impressions in a stated period.
Revenue from the company’s Ad-Supported segment is dependent primarily on the number and hours of engagement of its Ad-Supported Users and podcast listeners and its ability to provide innovative advertising products that are relevant to those users and enhance returns for its advertising partners. Revenue is generally recognized based on the number of impressions delivered.
The company’s advertising strategy centers on the belief that advertising products that are based in music and podcasts and are relevant to Ad-Supported Users and podcast listeners can enhance user experiences and provide even greater returns for advertisers. The company has historically introduced, and continue to introduce, new advertising products across both music and podcast content. Offering advertisers additional ways to purchase advertising on an automated basis is a keyway that the company continues to expand its portfolio of advertising products and the number of advertisers it can serve, enhancing its advertising revenue potential. Furthermore, the company continues to focus on analytics and measurement tools to evaluate, demonstrate, and improve the effectiveness of advertising campaigns on its platform.
The Spotify Audience Network (‘SPAN’) is an audio advertising marketplace that connects advertisers to listeners across the company’s owned and exclusive podcasts, podcasts from enterprise publishers via Megaphone, and podcasts from emerging creators via Spotify for Creators. Through SPAN, the company provides hosting and ad-insertion capabilities for audio publishers that allow it to sell targeted advertising to brand partners that enables them to reach listeners both on and off its platform. Most of these agreements requires the company to share associated revenues and can include minimum guarantees.
In addition, certain of the company’s two-sided marketplace offerings result in advertising revenues.
Licensing Agreements
In order to stream content to the company users, it generally secures intellectual property rights to such content by obtaining licenses from, and paying royalties or other consideration to, rights holders or their agents. Certain of these license agreements also provide for minimum guaranteed payments or advance payment obligations. Below is a summary of certain provisions of the company’s license agreements relating to sound recordings and the musical compositions embodied therein (i.e., the musical notes and the lyrics), as well as podcasts, audiobooks, and other non-music content.
Sound Recording License Agreements with Major and Independent Record Labels
The company has license agreements with record label affiliates of the three largest music companies—Universal Music Group, Sony Music Entertainment, and Warner Music Group, as well as Merlin, which represents the digital rights on behalf of hundreds of independent record labels.
The company also has direct license agreements with hundreds of independent labels, as well as companies known as ‘aggregators’ (for example, CDBaby, Distrokid, and TuneCore).
Musical Composition License Agreements with Music Publishers
The company generally obtain licenses for two types of rights with respect to musical compositions: mechanical rights and public performance rights.
With respect to mechanical rights, in the United States, the rates that the Copyright Royalty Board set apply to compositions that the company licenses under the compulsory license in Section 115 of the Copyright Act. In January 2021, the company obtained a new blanket compulsory license available under U.S. law, administered by an entity called the Mechanical Licensing Collective. In August 2023, the Copyright Royalty Board issued final regulations for the Phonorecords III period. The Copyright Royalty Board set the rates for the Section 115 blanket compulsory license for calendar years 2023 to 2027 in proceedings known as the ‘Phonorecords IV’ proceedings.
Podcast License Agreements with Podcasters and Podcast Networks
With respect to podcasts in both audio-only and video formats that the company licenses from others, it either negotiate licenses directly with individuals or entities or obtain rights through its owned and operated services, such as Spotify for Creators, that enable creators to distribute content to its Service after agreeing to comply with the applicable terms and conditions.
Audiobook License Agreements with Audiobook Publishers and Authors
With respect to audiobooks for which the company obtains distribution rights directly from rights holders, it either negotiate licenses with audiobook publishers or authors or obtain rights through its owned and operated service, Findaway Voices by Spotify, that enables creators to distribute content to its Service after agreeing to comply with the applicable terms and conditions.
License Agreement Extensions and Renewals
From time to time, the company’s license agreements with certain rights holders and/or their agents expire while it negotiates their renewals. Per industry custom and practice, it may enter into extensions of those agreements (for example, months, weeks, or even days-long) or provisional licenses and/or continue to operate on an at will basis as if the license agreement had been extended, including by the company is continuing to make content available. It is also possible that such agreements will never be renewed at all.
Competition
The company competes with:
free and/or subscription-based digital music streaming providers, such as Apple Music, YouTube Music, Amazon Music, Deezer, Joox, Pandora, and SoundCloud, for high-quality music content and the time and attention of the company users;
online or offline providers of on-demand music, which may be purchased, downloaded, owned, or available for free, such as iTunes audio files, MP3s, or CDs;
providers of internet radio, some of which, such as Pandora, may leverage their advantage in content library, territorial coverage, existing infrastructure, and brand recognition to introduce additional streaming or on-demand music features to enhance user experience;
providers of satellite radio, such as SiriusXM, which may offer extensive and exclusive news, comedy, sports and talk content, and national signal coverage;
podcast streaming providers, such as Apple Podcasts, YouTube, Audible, Facebook, Pandora, Deezer, and TuneIn, for high-quality podcasts and time and attention of its users; a growing variety of these podcast providers seek to differentiate their service through content offering, product features, and monetization ability;
podcast creation and hosting platforms, including Acast, Buzzsprout, Podbean, and Libsyn;
audiobook content providers, such as Amazon’s Audible, Apple Books, Google Audiobooks, Librivox, Kobo Audiobooks, Downpour, Storytel, and BookBeat, for the rights to distribute content and time and attention of its users;
companies that offer advertising inventory and opportunities, including large online advertising platforms and networks, such as Alphabet, Meta, Amazon, Microsoft, Snap, Pinterest, iHeartMedia, and Pandora.
The company faces robust and rapidly evolving competition in all aspects of its business, including from companies that allow users to share and discover content and/or that enable advertisers to use content platforms to reach customers, such as Apple, Alphabet, Amazon, Meta, and ByteDance.
Seasonality
The company’s results reflect the effects of its trial programs, both discounted and free trials, in addition to seasonal trends in user behavior and, with respect to its Ad-Supported segment, advertising behavior. Historically, Premium Subscriber growth accelerates when the company runs such trial programs. Since 2022, the company had run three programs per year during the second, third, and fourth quarters. (year ended December 31, 2024).
For the company’s Ad-Supported segment, typically it experiences higher advertising revenue in the fourth quarter of each calendar year due to greater advertising demand during the holiday season. However, in the first quarter of each calendar year, the company typically experiences a seasonal decline in advertising revenue due to reduced advertiser demand.
History
Spotify Technology S.A. was founded in 2006. The company was incorporated in 2006.
