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Spotify isn't making money. Can investors? / Bloomberg

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Spotify Chief Executive Daniel Ek has persuaded more people to pay for music online than anyone besides Steve Jobs and Jeff Bezos. On Wall Street, his business may be a tougher sell. Spotify aims to go public in the second half of next year, say five people familiar with the plan. In March, shortly before its 10th birthday, the Swedish company raised $1 billion in convertible debt from investors who valued the company at more than $8 billion. It's also lost money in each of those 10 years. Companies awash in red ink can make it in public markets-Amazon.com, Tesla-but it's hard to hang a business on music streaming. "This is just a tough sector, and that is skepticism Spotify will have to overcome," says Mark Mahaney, an analyst with RBC Capital Markets. The company declined to comment for this story.

Ek's company is great at what it does. Spotify dominates paid streaming, with more than 30 million customers, most paying $10 a month for a library of millions of songs. Last year sales almost doubled, to $2.2 billion. (Pandora, which has about 80 million users, reported sales of $1.2 billion.) So why the losses? Well, Spotify's expenses start with commissions to the music industry, which last year totaled more than $1.8 billion, according to public filings. Record labels bank about 55 percent of Spotify sales, and publishers also get cuts. The largest checks go to the big three labels, Universal Music Group, Sony Music Entertainment, and Warner Music Group.

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