Online music service Spotify doubled its revenue last year, but its international expansion is widening losses as well, to the tune of $88 million according to the company's latest financial statement.
The Stockholm based company reports that its sales rose from 190 million euros in 2011 to 435 million euros, about $577 million last year. The company's user base has been growing at a rapid pace, having doubled its active users to more than 20 million and growing its premium service subscribers to over 6 million in 2012.
More recently, the digital music service reported a growth of over 1 million users between December 2012 and March 2013, making Spotify the fastest growing digital music service ever.
However, due in large part to the high cost of content royalty fees, this growth has come at the expense of widening losses. Spotify's recorded net losses went from 45.4 million euros in 2011 to 58.7 million euros, or roughly $88 million in 2012. The company spent 363 million euros on royalty fees in 2012, well up from the 186 million euros the year prior. That means Spotify is spending about 70% of revenues on music royalties.
Even with such slim margins the company remains focused and confident, citing unheard of free to paid conversion rates for a freemium business throughout 2012:
“During 2012 Spotify saw dramatically increased revenues while maintaining a free to paid conversion rate of well over 20% - unheard of for a freemium business, and a clear demonstration of the success of the business model," a Spotify spokesperson said. "Our key priority throughout 2013 and beyond remains bringing our unrivalled music experience to even more people while continuing to build for long-term growth - both for our company and for the music industry as a whole."
Spotify is expected to pay as much as half a billion dollars to content rights holders in its fiscal 2013.