Spotify’s Financials Deemed “Unsustainable”

At the same time that streaming radio platform Pandora is pressing to pay rates closer to that of terrestrial radio,  music service Spotify is being accused of having a shaky financial model.

That from financial analysis firm PrivCo. It called Spotify’s business model “alarming,” citing its payment of every new dollar of 2011 revenue to royalty payments (even though Spotify did increase revenue 151 percent).

From Hypebot:

PrivCo Founder and CEO Sam Hamadeh also said today in a statement:

“Spotify’s 2011 results indicate that drastic changes must be be made quickly to its business model in order to generate growth while actually improving operating margins so that break-even, let alone profitability, is somewhere, anywhere, on the horizon.”

“Either the online music royalty payment model to artists and music companies needs to change, which is highly unlikely in the near term given that digital royalties are record companies only growing revenue stream, or Spotify needs to ASAP introduce a tiered subscription system, as opposed to its current flat monthly fee model, which is clearly a broken business model.   Spotify’s heaviest users will have to pay, for example, for a “Spotify Platinum” level for $25/month with more song plays allowed.  No matter how we slice the math, it is patently clear that something’s gotta change soon on Spotify’s business model if the company is to survive.”