Spotify Worth More Than Entire Music Industry? Only If You Compare Apples and Oranges
A new report has come forward claiming that streaming service Spotify is worth more than the music industry as a whole. Understanding that Spotify is itself part of the music industry, take ease in knowing that the statistics presented as part of the Wall Street Journal's eye-opening reports isn't exactly apples-for-oranges (from Consequence of Sound).
Here are the numbers that blew the minds of readers who didn't necessarily know what they were looking at: According to information released by the Journal, Spotify is worth $8.4 billion while the music industry as a whole is worth a mere $6.97 billion (the report was tied to news that the Swedish streaming company had secured an additional $400 million in funding).
The Wall Street Journal's reporting was a little excited to generate furor, similar to CNN during an ebola breakout, and skewed some facts for effect. The $6.97 billion figure it used to valuate the music industry was derived from music earnings during 2014. Now, as Spotify's earnings play into the overall earnings of the music industry, it's absolutely impossible that the former can be larger than the latter, unless they're suggesting the music industry actually lost nearly $1.5 billion...except for what Spotify earned.
The $8.4 billion valuation of Spotify doesn't indicate what the company earned but rather what the company is estimated to be worth. Whereas the music industry number was sourced from revenue. A fact that pretty much sums up how misleading the report was: Spotify didn't even manage a profit during 2014. In fact, it's never earned a profit. Although its value continues to rise thanks to increased funding, its value is totally based on theoretical future revenue. It's still operating in the red right now.
All signs seem to indicate that streaming is the future format of music. Don't think that any single company can truly be worth as much as the industry as a whole however.
UPDATE: The Wall Street Journal never explicitly stated that Spotify was worth more than the music industry. Reports such as those by Digital Music News suggested the fact, while other media outlets mistakenly reported that WSJ made the misleading statements. We apologize for the confusion.