Do The Math: How Big Will Spotify’s Revenues Be In 2010?

Updated with corrected numbers: It seems the Internet is obsessing over Spotify’s revenues and losses from 2009, which doesn’t make sense considering that in about five weeks we’ll ring in 2011, and especially since Spotify will close the books on what will arguably be a year of scorching growth.

Music Ally, a music industry publication, earlier today revealed Spotify’s 2009 financial statements. According to these documents, nearly 60 percent of company revenues are coming from subscriptions and rest is coming from advertising. In 2009, the company had 7 million total users of which 250,000 were paying subscribers. In July 2010, the company said it had 500,000 subscribers, and in late October 2010, it was rumored to have 650,000 paying subscribers. Roughly speaking, Spotify added approximately 41,600 new paying subscribers per month.

Spotify, which is based in Stockholm, Sweden, is rumored to now have 10 million users, including 650,000 who pay about 10 Euros ($13.86) a month to the service as part of their premium subscriptions. Nearly 90 percent are paying the full price while 10 percent are said to be paying 5 euros for limited edition version of Spotify.

Using that very limited data set, I put together a revenue model for Spotify’s paid revenues. Now mind you, this data should be taken with a pound of salt, since I’m extrapolating from publicly available information, some of which might actually be hearsay. With that huge caveat in mind, it seems Spotify had a big 2010.

Back of the envelope (see chart) estimates show that the company will bring in close to $140 134 million (102.5 98.88 million Euros) for 2010.

We used the assumption that the company maintained its 2009 paid-versus-advertising revenues ratio. Of the total, $84 80 million (61 59.33 million Euros) are coming from subscriptions (60 percent) and another $5653.6 million (41.3 39.55 million Euros) came from advertising. These rough numbers also don’t tell you one way or the other if the company is or will it be profitable in 2010.

Spotify’s royalty payments to record labels are going up sharply, almost $30 million in last eight months alone, according to published reports. And the increase number of subscribers and users means the company’s cost of operations (including infrastructure costs) must be going up.

Nevertheless, the company is looking at a big 2011. With more wireless carriers interested in pushing Spotify, and handset makers such as Nokia (s NOK) promoting the service aggressively on its Ovi platform, there will be significant momentum for Spotify’s subscriber base.

Spotify has raised over $50 million in funding, and is rumored to be profitable based on its European operations alone, but has struggled to find a toehold in the all-important U.S. market. If the 2010 success is any indication, the company doesn’t need U.S. to have a rocking 2011.

Updated: The original post included December 2009 revenues which lead to overstatement of subscription revenues for the entire 2010 by $3.389 million (2.5 Million Euros.) The error is regretted and I have updated my estimates to reflect that. Using the new estimates, the total revenues for the company are $134 million, down from previous projection of $140 million.)

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