Spotify CFO Barry McCarthy said Thursday that every new user who uses the music streaming service for free costs the company money, and it takes about a year for premium members to repay that cost, according to Business Insider.
McCarthy, who is the former CFO of Netflix, said Spotify’s ad-supported free service often leads to new users signing up for the premium edition, which costs $9.99 and comes without ads.
However, it takes some time for premium members to make back what they cost Spotify as a free user.
“After a customer moves from the free tier to Spotify Premium, it takes 12 months on average for Spotify to recoup the costs of all the music they listened to without paying,” according to Business Insider.
The company said the service costs so much to maintain because of royalty payments to artists and music licensing fees. In 2008, the company spent $10 billion in fees. According to CNBC, Spotify said it had an operating loss (when operating expenses are higher than income) of $425.6 million in 2016 and $461.3 million in 2017.
McCarthy said the company’s free service is a necessary expense to gain new subscription users. As of January 2018, the company has about 70 million subscribers. Spotify will pay off financially once it scales and reaches more people, he said.
The company’s CEO, Daniel Ek, said Friday that the company is looking to add subscribers in India and other foreign markets, The Economic Times reported.
“We are working on launching in some of the biggest markets in the world, including India, Russia, and Africa, which has a very rich musical culture,” Ek said.
Spotify also began testing a new voice-search service that allows users to seek content through a new voice interface, similar to Alexa or Siri, TechCrunch reported.
A Spotify spokesperson told TechCrunch that the service is only in the testing phase.
“Voice control could make Spotify easier to use while on the go, using microphone headphones, or in the house if you’re not holding your phone,” according to TechCrunch.
In late February, a job posting on Spotify’s website suggested the company would build its own physical product (it's unclear what that will be), but it's believed to be a smart speaker that would be a direct competitor for the Amazon Echo or Apple HomePod, according to Fast Company.
Meanwhile, Spotify's direct competitor when it comes to streaming, Apple Music, announced on Tuesday that service has 38 million subscribers, which is 2 million more than last month, according to CNet.
Apple Music said there are potentially 2 billion subscribers who haven’t joined a service yet.