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Originally Posted by Top100EbooksRank
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.
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Or, more likely, they are hoping to become large enough to be bought out.
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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.
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Your example is exactly the opposite. If profit margin remains the same while your revenue increases, then you have no economy of scale.
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.