Digital jukebox Spotify on track to report modest first profit

Music streaming service Spotify now has almost 2 million paying customers

Spotify, the digital jukebox, is forecast to report a profit for the first time when it publishes its 2010 results later this year, in the biggest indication yet that a business model is emerging that could stem the millions lost to music piracy.

Already ahead of iTunes as the biggest digital music retailer in Sweden and Norway, Spotify now has 1.9 million paying subscribers in the US and Europe, although most of its 6 million active users still use its song library for nothing.

The music streaming service lost nearly £17m in the UK alone last year. But industry expert Martin Scott at Analysys Mason forecasts that the company will report revenues of €59m (£52m) for the year to December 2010, compared to just under €13m in 2009.

Spotify paid €45m in royalties to record labels during that time, and is thought to have spent about €10m on staff, offices and marketing costs. Which could leave a profit of €5m or less. "I think we are talking about a modest profit of a few million euros," said Scott. "It's down to the fact that they have successfully managed to convert a double digit [percentage] of their customers to the paid-for service."

In July, Spotify launched in the US, where it has 200,000 paying customers. Later this year Virgin Media will start offering its 5 million UK customers a Spotify subscription to download songs on TV sets and computers.

Spotify makes three-quarters of its money from subscriptions and a quarter from advertising. Scott estimates that in 2010 an average of 450,000 customers paid €8 a month, generating €45m, to which can be added just over €13m in advertising revenues. Spotify declined to comment.

Well over a million people stopped using Spotify in April, when it tightened the restrictions on its free service, but the number prepared to pay – £4.99 for the basic service and £9.99 for the premium service – soared, and between April and May, more than 500,000 subscribers were added. It had taken Spotify from launch in October 2008 until March 2011 to reach 1m subscribers.

Founded by Swedish entrepreneur Daniel Ek, Spotify's popularity in Scandinavia is partly down to its deals with the internet service provider Telia. Customers get Spotify's music service bundled with their TV and broadband in Sweden and Finland. International expansion was helped by a fresh round of fundraising in February, when Russian technology investor Yuri Milner, led a $100m financing that saw the company valued at $1bn.

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