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Spotify makes money mainly from Premium subscriptions, with advertising as its second revenue stream. In 2025, Premium generated 89% of Spotify’s revenue and advertising generated 11%. The free tier also serves as a route to paid subscriptions, while the cost of licensing music and other content limits how much revenue becomes gross profit.
How does Spotify make money?
Spotify Technology S.A.’s 2025 Form 20-F, filed February 10, 2026, reports €11.690 billion in total revenue. That came from two segments: Premium subscriptions and its Ad-Supported service.
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| Revenue stream | 2025 revenue | Share of total |
|---|---|---|
| Premium subscriptions | €10.184 billion | 89% |
| Ad-Supported service | €1.506 billion | 11% |
| Total | €11.690 billion | 100% |
These are full-year figures reported in Spotify’s 2025 Form 20-F. The split shows that Spotify is primarily a subscription business, even though its free, ad-supported service remains an important part of the model.
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Spotify earns Premium revenue from subscriptions sold directly and through partners. The amount depends on factors including the number of subscribers, subscription prices, markets and plan mix. Partners may bundle Premium with their own services or sell it as an add-on; Spotify says partner revenue is based on per-subscriber rates set in negotiated agreements.
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Spotify reported 290 million Premium subscribers on December 31, 2025, up from 263 million at the end of 2024. Premium offers an ad-free music experience and offline listening; other features and available content vary by market and plan.
For the full year 2025, Premium revenue was €10.184 billion, or 89% of total revenue. Subscriber totals and revenue are related, but they are not interchangeable: pricing, plan choices, geography and partner arrangements all affect how much revenue each subscriber represents.
How Spotify makes money from free listening
Spotify’s free Ad-Supported service charges no subscription fee. It provides limited on-demand online music access and advertising-supported access to other catalog content. Spotify sells ads directly and through automated channels. Depending on the arrangement, advertising can be priced by delivered impressions using CPM (cost per thousand impressions) or through auction-based mechanisms.
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Ad-Supported revenue was €1.506 billion in 2025, 11% of total revenue. It was down from €1.625 billion in 2024. Spotify attributed the decline largely to lower direct music and podcast advertising revenue, lower fixed-CPM rates and fewer music impressions sold. A large audience, therefore, does not guarantee that advertising revenue per listener will stay constant.
The free tier is also a subscriber funnel
Spotify describes its two services as living independently but thriving together. The filing says the Ad-Supported service is a funnel for a significant portion of gross Premium subscriber additions. That is Spotify’s account of the free tier’s role in its business model—not a claim that every free listener eventually becomes a paying customer.
Why licensing costs shape Spotify’s economics
Spotify relies on third-party rights to most of the content it streams. Royalties and distribution are major content-related costs, and Spotify’s filing describes royalty calculations as dependent on negotiated agreements and multiple variables, including revenue, content type, country, product tier, users, and advertising fees or discounts. The company also says estimating royalty liabilities involves complex data systems.
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That is why there is no reliable universal amount Spotify pays for every stream. A stream count alone does not establish what an individual performer receives: payments are made to rights holders under agreements, and labels, publishers, distributors or other contracts can affect what ultimately reaches a creator.
Reported content costs and margins
Spotify’s 2025 Form 20-F reports Premium cost of revenue at 66% of Premium revenue in 2025, compared with 67% in 2024. Ad-Supported cost of revenue was 82% of segment revenue in 2025, down from 88% in 2024. Consolidated gross margin for 2025 was 32%.
These are segment and company accounting measures, not estimates of an individual artist’s share. Spotify said Premium royalty costs rose by €765 million in 2025, while certain marketplace-program benefits partly offset cost increases. For Ad-Supported, lower podcast costs and lower music royalty costs contributed to reduced cost of revenue.
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How Spotify says it pays the music industry
Spotify said in its Q4 2025 earnings release that it paid more than $11 billion to the music industry in 2025, and that independent artists and labels accounted for half of all royalties. The company’s Head of Music, Charlie Hellman, characterized Spotify’s payout as two-thirds of all music revenue, or “almost 70% of what we take in,” in a January 28, 2026 post. These are Spotify’s own company-wide figures and description of its payout model.
The total is not a per-artist payment schedule and does not mean the full amount went directly to performers. Spotify pays rights holders; contractual arrangements determine how revenue is divided among labels, publishers, distributors and creators.
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What Spotify’s figures say about its business model
- Revenue mix: Premium supplied 89% of 2025 revenue, while advertising supplied 11%.
- Free-tier role: Ad-Supported listening earns ad revenue and, according to Spotify, also helps bring in Premium subscribers.
- Cost constraint: Licensing and distribution costs materially affect segment economics, and royalty calculations depend on negotiated terms and other variables.
- Audience versus monetization: Spotify reported 751 million monthly active users and 290 million Premium subscribers at December 31, 2025. Audience size alone does not determine revenue or margin.
- Payout interpretation: Platform-wide payments to the music industry do not reveal what any particular artist receives.
In Spotify’s Q4 2025 earnings release, the company reported a 33.1% gross margin and €701 million of operating income for that quarter. Those are quarterly results, distinct from the 32% gross margin reported for the full year 2025 in its Form 20-F.
At its May 2026 Investor Day, Spotify management described renewing music-rights contracts, expanding its marketplace business, reworking advertising and podcasting, and expanding audiobooks in Premium as parts of its strategy. These are management’s strategic remarks; the Form 20-F is the source for the annual reported revenue and segment figures above.
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