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Spotify announced via Twitter that 50 million users now pay for a subscription, a 25% increase over the 40 million announced in September.
This marks the quickest amount of time Spotify has added 10 million paid users, in under six months. Although Spotify did not update total users, the last known figure was over 100 million, reported in June 2016. This could imply that Spotify is doing a better job convincing free users to sign up for premium tiers, which average $10 per month. Here’s how the 50 million compares to other streaming services:
- Spotify is the clear leader in paid streaming music subscriptions. Spotify has over double the number of paid subscribers than it’s nearest competitor, Apple Music, which had 20 million subscribers as of December 2016. Meanwhile, Pandora has just over 4 million subscribers and Tidal comes in around 3 million, a figure open for debate. SoundCloud and iHeartRadio both have paid tiers less than a year old, and have not yet disclosed subscriber counts.
This may also bode well for a 2017 IPO as investors like to see strong subscriber growth, but there are two different camps to the IPO-timing argument:
- IPO in 2017: Avoid unfavorable debt terms and piggy-back off Snap IPO. Spotify has very stringent debt terms that are tied to the timing of it’s IPO, and advocates for a “the-sooner-the-better” mentality. The company’s investors will increase their debt-to-equity discount by 2.5 percentage points for every six months that Spotify does not IPO, and the clock began ticking early this year. In addition, Spotify will have to pay higher interest rates on that debt the longer they stay private. Last, Snapchat’s successful IPO debut could suggest a favorable climate and investor appetite for tech offerings.
- IPO in 2018: Provide a roadmap to profitability by renegotiating with music labels. Spotify is unprofitable, and the company may be delaying their IPO until 2018 to improve its margins, according to TechCrunch. One way to do this is by renegotiating licensing agreements with labels to shift from a variable pricing model based on track plays, to a fixed model. Spotify may also leverage their impressive subscriber growth stats to renegotiate debt terms for more leeway on IPO timing.
Either way, Spotify’s strong paid user metrics are music to their investor’s ears.
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