Even though revenue is growing for the music streaming services Pandora and Spotify (the green lines above), both Pandora and Spotify "are hemmoraging cash in the face of tough license agreements and mounting content acquisition costs." In other words, even as new users sign up and advertisers are testing the waters (buying ads that interrupt the flow of "free" music on the entry levels of these services), both Spotify and Pandora are paying too much for the rights to stream music to their subscribers. Because their expenses are larger than their revenue - Pandora and Spotify are both reporting major losses.
Although supporters say these services are still building out, and you can't fairly judge their profitability until they have been adopted by a large number of users, the business models for both these services may need rethinking.
Right now, both Spotify and Pandora offer entry-level free services. Then, if you like what you're hearing, they both have ways of getting paid. Here's how...
You can receive Pandora with ads for free, but the Pandora One ad-free experience currently costs either $36 for a year or $3.99 a month. Similarly, in the U.S., Spotify offers a free service with ads and two fee-based plans: the $4.99 per month “Unlimited” level removes the ads and the $9.99 per month “Premium” level that gives you access to all of Spotify’s features in mobile apps and offers offline mode for playlists.
As the chart above illustrates, neither service's revenue is keeping up with costs - and (unless music licensing prices come down and/or ad revenue skyrockets and/or users start switching to the paid tiers in greater numbers) these services may never move into profitability.
Thanks to Statista.com for the chart, Mashable for the analysis quoted above and Gerd Leonhard for the link.