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# Spotify Sells Subscriptions. It Earns on the Share It Keeps After Paying for the Music.
- URL: https://www.earningsdriver.com/spotify-earns-on-the-share-it-keeps-after-paying-for-the-music/
- Published: 2026-10-23T07:39:13.000Z
- Updated: 2026-11-04T05:20:16.000Z
- Description: Spotify earns on the share of each subscription it keeps after paying record labels, music publishers and other rights holders. Watch the gross margin, and whether price increases raise what each subscriber pays.
- Author: Heejung Chang
- Tags: How Companies Make Money

**In one line:** Spotify earns on the share of each subscription it keeps after paying record labels, music publishers and other rights holders. Watch the [gross margin](https://www.earningsdriver.com/glossary/#gross-margin), and whether price increases raise what each subscriber pays.

**At a glance**

- **Latest:** gross margin 33.0% in Q3 2026, against 31.6% in Q3 2025
- **Biggest risk:** subscribers leaving after price increases, or rights holders asking for a larger share when their agreements are renewed
- **Reports:** Quarterly. Next results: see [Earnings Dates](https://www.earningsdriver.com/earnings).

Watch the video version of this article.

On October 22, 2026, Spotify reported third-quarter [revenue](https://www.earningsdriver.com/glossary/#revenue) of €4.97 billion (about US$5.72 billion), up 16% from a year earlier. It had 306 million paying subscribers, 9% more than a year before. Spotify's [cost of revenue](https://www.earningsdriver.com/glossary/#cost-of-revenue), mostly payments to rights holders, took 67.0% of revenue. More subscribers explain much of Spotify's revenue growth. They do not explain how **Spotify kept 33.0% of its Q3 2026 revenue as gross profit, against 25.6% for the full year 2023**.

## What it sells vs. what it earns on

Spotify had 788 million monthly users in Q3 2026, and most of them listened to the free version with ads. Spotify reports two [segment](https://www.earningsdriver.com/glossary/#segment)s: Premium, the paid version without ads, and Ad-Supported, the free version. Premium brought in 90% of revenue in Q3 2026 and about 95% of [gross profit](https://www.earningsdriver.com/glossary/#gross-profit). The US brought in 37% of Spotify's revenue in Q3 2026\. Spotify raised the US price of an individual Premium plan from $11.99 to $12.99 a month in February 2026.

**Table 1 — Spotify's segments, Q3 2026 (€ million)**

| Segment      | Revenue   | Change from Q3 2025 | Gross margin |
| ------------ | --------- | ------------------- | ------------ |
| Premium      | 4,487     | +17%                | 34.5%        |
| Ad-Supported | 482       | +10%                | 18.7%        |
| **Total**    | **4,969** | **+16%**            | **33.0%**    |

*Change from Q3 2025 is in euros as reported; Q3 2025 figures reflect Spotify's 2026 reclassification of some revenue to Premium.*

Spotify licenses recordings from record labels and songs from music publishers. Four rights holders delivered about 72% of the streams that came from record labels in 2025\. They are Universal Music Group, Sony Music, Warner Music Group and Merlin, which represents independent labels. Spotify says it paid more than $11 billion to the music industry in 2025, about 57% of its revenue that year. Its cost of revenue also includes payments for audiobooks and video podcasts, payment processing fees and the cost of running its service.

What Spotify earns on is the gap between what subscribers pay and what it pays out. Spotify's subscription royalties, which it calls music costs, are usually the greater of a share of revenue and an amount per user. A price increase therefore raises royalties too. Some agreements also require minimum payments, which Spotify calls minimum guarantees, even if revenue falls short. At the end of June 2026, €2.29 billion (about US$2.7 billion) of these guarantees were outstanding.

Marketplace programs, in which artists and labels accept lower royalties on some songs in exchange for promotion, lower music costs. Spotify says Premium's gross margin rose because revenue grew faster than both its music costs, after savings from marketplace programs, and its audiobook and video podcast costs. It does not say how much each adds. About 41% of the revenue added between Q3 2025 and Q3 2026 was gross profit, against 33.0% of all revenue.

Spotify had an operating loss in 2023, when its gross margin was 25.6%. In 2025 its gross margin was 32.0%, and its [operating income](https://www.earningsdriver.com/glossary/#operating-income) was €2.20 billion (about US$2.48 billion), 12.8% of revenue.

## What moves the profit

> **Operating income ≈ (Premium subscribers × Revenue per subscriber + Advertising) × Gross margin − Product development, marketing and overhead**

- **Premium subscribers.** Paying users at the end of the quarter. Spotify reports the count each quarter and gives a forecast for the next one.
- **Revenue per subscriber.** What each Premium subscriber pays a month on average, which Spotify calls ARPU. Price increases raise it. Growth in cheaper countries and plans lowers it.
- **Advertising.** Ads sold on the free version.
- **Gross margin.** Spotify does not disclose its royalty rates. They show up in the gross margin of Premium and of the free version.
- **Product development, marketing and overhead.** Spotify's [operating expenses](https://www.earningsdriver.com/glossary/#operating-expenses). They include a payroll tax, mainly in Sweden, on employees' share awards, which Spotify calls Social Charges. It rises and falls with Spotify's share price. Spotify estimates that each 10% move in the share price changes it by about €20 million (about US$23 million) a quarter.

## Reading the earnings: what to watch, and how

Spotify's shareholder updates, filings and [earnings call](https://www.earningsdriver.com/glossary/#earnings-call)s are all at investors.spotify.com.

- **Gross margin, against Spotify's forecast.** *Read it:* Spotify gives a gross margin forecast for each quarter. Compare the result with it, and check the reason Spotify gives for any gap, since part of a gap can come from costs moving between quarters. *Latest:* 33.0% in Q3 2026, against a forecast of 32.9% and 31.6% a year earlier. For Q4 2026, Spotify forecasts 33.8%, against 33.1% in Q4 2025.
- **Premium subscribers added.** *Read it:* the change from the previous quarter shows whether sign-ups are slowing, for example after price increases. *Latest:* 306 million in Q3 2026, up 6 million from Q2, against 5 million added in Q3 2025\. Spotify forecasts 316 million for Q4, which would add 10 million.
- **Revenue per subscriber, excluding currency.** *Read it:* Spotify reports the monthly amount in euros and its growth rate with and without currency moves. Read the rate without currency moves, which still includes the effect of more subscribers in cheaper countries and plans. *Latest:* up 7.5% from a year earlier in Q3 2026 excluding currency, against 7.4% in Q2 2026\. Revenue per subscriber was €4.95 a month (about US$5.70).
- **Operating expenses, excluding Social Charges.** *Read it:* Spotify reports expense growth excluding currency and Social Charges, which shows the spending Spotify controls. *Latest:* up 19% from a year earlier in Q3 2026, against revenue growth of 14% excluding currency. Reported expenses rose 26%, partly because Social Charges were €22 million (about US$25 million), against a €16 million (about US$19 million) benefit a year earlier.

## Leading indicators (outside Spotify's filings)

- **The euro against the US dollar.** More than a third of Spotify's revenue comes from the US, so a weaker euro raises its reported revenue. *(currency)*
  - *When:* daily. *Where:* European Central Bank reference rates.
  - *Latest:* the euro averaged about $1.15 in Q3 2026, against about $1.17 in Q3 2025.
- **Rivals' prices.** A rival's price increase may make Spotify's own increases easier to keep. *(price)*
  - *When:* when announced. *Where:* company announcements and news reports.
  - *Latest:* Apple raised the US price of an individual Apple Music plan from $10.99 to $11.99 a month in July 2026, against Spotify's $12.99.

## What Wall Street is asking

Across Spotify's last four earnings calls, from February to October 2026, analysts kept returning to a few questions.

1. **"Will the gross margin keep rising?"** In October, Christian Luiga, the finance chief, said Spotify's Q4 2026 forecast "implies a full-year gross margin expansion of approximately 130 [basis point](https://www.earningsdriver.com/glossary/#basis-point)s compared to 2025." He said the "quarterly progression of our margin can be variable due to seasonality and the timing of investments."
2. **"How much more can price increases raise revenue per subscriber?"** In October, Luiga said the Q4 2026 forecast reflects "a year-over-year ARPU increase of 4.5% to 5%, driven by recent pricing actions," and by Spotify's Audiobooks+ add-ons. He said, "This is partly offset by the lapping of prior year pricing actions across more than 150 markets."
3. **"When will ad revenue grow faster, and at what margin?"** In October, Alex Norström, one of Spotify's two co-chief executives since January 2026, said, "In Q3, Ads grew 9% at [constant currency](https://www.earningsdriver.com/glossary/#constant-currency), up from the 3% in each of the first two quarters." Luiga said, "In quarter four, we expect to continue our progress towards double-digit growth." In August, Luiga said the margin of the advertising business can move "from the 20% range we have today towards 40% over time."
4. **"How fast will operating expenses grow, with more spending on marketing and AI?"** In October, Luiga said, "OpEx growth is now coming down meaningfully, and we expect that moderation to continue into 2027."
5. **"Do limits on the free version add Premium subscribers?"** In August, Norström said Spotify had added more ads and some limits to the free version in emerging markets on purpose. In October, asked about India and Indonesia, he said the changes included "better data hygiene in our sign-up flows, ad load adjustments."

## A note on valuation

On October 22, 2026, after its Q3 results, Spotify's shares closed at about $584, valuing the company at roughly $120 billion. At the end of September 2026, Spotify held about €9.9 billion (about US$11.4 billion) in cash and short-term investments and had no borrowings, having repaid its exchangeable notes in March 2026\. Spotify's [enterprise value](https://www.earningsdriver.com/glossary/#enterprise-value) was about US$109 billion, or about 35 times its operating income over the four quarters to September 2026.

## The bottom line

Spotify's profit is what it keeps of each subscription after paying rights holders. That share has grown since 2023, and Spotify is raising prices. Whether subscribers keep signing up, and what rights holders ask for when their agreements are renewed, is not yet known. *(See:* [*Netflix Sells a Monthly Subscription. It Earns by Growing Faster Than Its Content Costs.*](https://www.earningsdriver.com/netflix-earns-by-growing-faster-than-its-content-costs/)*)*

**How does what a subscription pays for its content shape its profit?** The book's chapter on Netflix and Adobe compares a catalog that must keep being renewed with software that keeps earning: [**Earnings Driver**](https://www.earningsdriver.com/book).

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*Sources: Spotify Q3 2026 shareholder update (Form 6-K, October 22, 2026); Spotify Q2 2026 shareholder update and Form 6-K interim financial statements (August 4, 2026); Spotify Q1 2026 shareholder update (April 28, 2026); Spotify Q3 2025 shareholder update (November 4, 2025); Spotify earnings calls of February 10, April 28, August 4 and October 22, 2026; Spotify Q4 2025 shareholder update (February 10, 2026) and 2025 Form 20-F; Spotify Q4 2023 shareholder update (February 6, 2024); Spotify leadership announcement (September 30, 2025); Spotify 2025 music industry payouts (January 28, 2026); reports of Spotify's US price increase (January 2026) and Apple Music's price increase (July 17, 2026); European Central Bank euro reference rates; share price as of October 22, 2026 (StockAnalysis, TokenPost). US dollar figures use the average exchange rate for each period: $1.151 per euro for Q3 2026 (also used for balances at the end of September 2026), $1.168 for Q3 2025, $1.163 for Q2 2026 (also used for balances at the end of June 2026) and $1.130 for 2025; Q4 2026 forecasts use Spotify's September 30, 2026 rate of $1.133.*

**For sources that work for any company — filings, earnings calendars, consensus estimates — see** [**Where to find the numbers**](https://www.earningsdriver.com/numbers)**.**

*Educational only, not investment advice. Figures as of the periods noted.*