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12-29-2012, 02:14 AM | #31 | ||
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Which is why Spotify is opting for GROWTH GROWTH GROWTH instead of PROFITS PROFITS PROFITS. They are thinking long-term instead of short-term profits. The free streaming is the bait. It is costing them a lot of money but as long as 20-25% of the free users eventually switch to paid users, it is well worth the money that Spotify is losing right now. Quote:
Economy of Scale does work in the case of subscription music 1 million subscriber paying $120 a year = $120 mil a year revenue 70% royalties payment, mean 30% margin = $36 mil a year leftover 5 million subscriber paying $120 a year = $600 mil a year 70% royalties payment, mean 30% margin = $180 mil a year leftover There is a reason why Spotify is valued at $3 billion. Economy of scale does work. Last edited by Top100EbooksRank; 12-29-2012 at 02:20 AM. |
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12-29-2012, 02:26 AM | #32 | |
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I'm just saying 30 million paying subscribers will generate about as much money for the music industry as Itunes does. 30 million paying subscribers will generate $3.6 billion USD. Itunes worldwide sales for music is around that mark right now. Subscription music is increasing at a very high rate. Downloading music is increasing at a slow rate. At some point, the two line will cross. It could be as early as 4-5 years from now. Last edited by Top100EbooksRank; 12-29-2012 at 02:29 AM. |
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12-29-2012, 03:25 AM | #33 | |
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Facebook didn't become profitable. It just became uncool and annoying. I think such a strategy can only work if you're actually selling something real - real stuff for real money - like Amazon and Apple do. But as long as a user is used to get everything for free (like MP3s or Facebook Spam) it's a bit more difficult. User habits change every few years, and when your mom is on Spotify, you need something else.. |
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12-29-2012, 06:08 AM | #34 | ||
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Economy of scale means that your per-unit cost decreases as your number of units sold increases. Ebooks would be the obvious example. The costs of producing the book (advance, editting, formatting) are fixed, with an extremely small variable cost per unit. So the more books you sell, the greater your profit margin becomes. |
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12-29-2012, 01:03 PM | #35 | |||||
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Each song streamed costs them a fixed amount; more users = more royalties. They also have to add servers, bandwidth and other overhead costs. They currently have a profit margin of 0.8%, not 30%. Again, they cleared about $1 million in profit off of $1 million paying subscribers. So if they grow to 5 million users, the increase in profit will probably be linear. Quote:
Spotify has a high valuation because a few people with big bucks are willing to speculate on its future success. They might be right, but that doesn't change the fact that right now, music subscription services are struggling. Quote:
Apple intentionally sacrifices profits from iTunes music sales because they make money off of hardware sales. For them, selling music is a loss leader -- it's a way to keep people buying iPhones and iPods and Macs and Apple TV's. So if you put these two models into competition, you have companies with only two means of generating revenues (subscriptions and ads) going up against a nimble company with a massive war-chest with a lock on the market, who doesn't need to profit off of music. Quote:
Terrestrial radio -- a prime competitor for streaming, really -- still has hundreds of millions of listeners around the globe. It isn't as deep of a catalog, but it's cheap to produce, ubiquitous, established and free for the listeners. Subscriptions have to offer one heck of a value proposition to beat radio. Again, this is not to say that "subscriptions are a total failure," or have no merit, or are doomed. It's only to point out that even as they add listeners, they are currently struggling just to survive. Crossing an arbitrary number of subscribers doesn't mean success, if they can't fix their business model. Proclaiming that they will eventually win the day is, to put it mildly, optimistic. |
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12-29-2012, 02:22 PM | #36 |
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Just to quibble, but it isn't actually a loss leader, the iTunes store does run at a profit, but that doesn't undermine your main point, that Apple run at much lower margins than they could do on content sales in order to increase the appeal of their hardware, which makes it hard for pure content companies to compete.
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12-29-2012, 02:36 PM | #37 | ||
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12-29-2012, 02:39 PM | #38 | ||
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Terrestrial radio is a "push" content business model (as is satellite radio, which is subscription based, but offers "premium" or commercial-free content). The playlists are corporately owned and the music or shows get pushed out to the audience, who can take it or leave it. Subscription such as Pandora is a partial-push--users designate certain parameters and tweak the settings, but the music pushed out to users is determined by Pandora (or really its algorithm). Rhapsody and, if I'm guessing right, Spotify (which I haven't used so I don't know how it works really), represent a "pull" model where the user selects the individual albums/artists/tracks to stream and/or download. iTunes represents a "pull" also but not on a subscription basis. The more the user listens to niche music, the more attractive the "pull" or "partial push" model becomes (partial push aids discovery of new artists and songs, which can be an issue if you like niche music). Quote:
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12-29-2012, 03:40 PM | #39 |
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12-29-2012, 09:39 PM | #40 |
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I got introduced to Pandora over the Thanksgiving week when I went to visit my brother. When I came home I started listening to Pandora on my pc with music that I like to listen to as well as some Christmas tunes.
Well last week I decided to get the 1 year subscription for $36.00 which is $3.00 a month for music I like to listen to with NO commercials. Some people spend that or more everyday for coffee at Starbucks. And since listening, I have purchased two cd's from favorite artists. The subscription has more than paid for itself right there! If it is a fit for you, buy it, if not don't, but for godsakes enough already with judging people one way or the other for what they choose to do with THIER money. Nor do I care why which corporation is doing what to attract listeners. If what they are pushing is giving people what they want and they happen to make a profit off of it it's a win/win for everyone. |
12-30-2012, 06:20 AM | #41 | |
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But a company with 5 million paying subscribers will be in a better shape to negotiate a better royalties rate compare to a 1 million paying subscribers company. The royalties rate is negotiable. In addition, there are some cost that stay the same (fixed instead of variable). So this will benefit a 5 mil subscribers vs a 1 mil company. As for Spotify valuation, Spotify has raised about $100m from a group of investors led by Goldman Sachs in a round that puts a $3bn valuation on the company Yes, its valuation could go down but it could go up too. Let's assume that Spotify will get 20 million subscribers one day. 20 million x $120 a year = $2.4 billion from subscribers revenue. It pays 70% in music royalties, which mean it has $720 mil to pay for expenses (bandwidth, servers, personnel, office and other overhead). Anything left over = profits. Last edited by Top100EbooksRank; 12-30-2012 at 06:22 AM. |
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12-30-2012, 06:21 AM | #42 | |
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It adds real value when your home audio system can dial it up the same way as satellite radio, but a lot cheaoer. |
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12-30-2012, 08:24 AM | #43 | |
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Y'know, I thought I did. But the only links I can find indicate that Rhapsody is still losing money. They have narrowed their losses, but I can't find the link which indicates they have actually turned a profit.
http://www.geekwire.com/2012/open-se...closer-profit/ I guess I just misread something. Quote:
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12-30-2012, 09:54 AM | #44 | |
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So long as I have access to it via my pc with my Polk TL3 speakers and CSW subwoofer I'm happy. |
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12-30-2012, 01:25 PM | #45 | |
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The $50 Roku will do the job fine if you want Pandora in the Family room. (And it'll plug in to your existing a/v set-up.) Mostly I was pointing out that of all the subscription services, Pandora (being the oldest) has the best client-side penetration and the best chance at profitability. And even they aren't there. And their attempts to lobby Congress for relief haven't done much for them or the other streaming players: http://arstechnica.com/tech-policy/2...n-in-congress/ There's a lot of wishful thinking going on in the subscription music projections. |
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