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Accounting Error to Blame for Spotify’s Massive Losses

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Revenue at Spotify is up 52% compared to last year, according to its annual report. But a staggering 133% increases in losses offsets the company’s promising performance.

The company says its $601 million in losses is due to an internal accounting mistake.

Spotify has modified its 2014 and 2015 reports to show the losses.

Costs that were initially omitted included executive bonuses of $10 million. The biggest issue is royalty payments to copyright owners and artists.

The error is just one more obstacle on Spotify’s road to becoming a profitable company. A report from Breakit shows that royalties were underappreciated by $60 million between 2014 and 2015.

The number of subscribers at the world’s largest paid streaming service has increased from 20 million to 50 million in less than two years. Spotify’s growth has helped reverse the sales decline that had plagued the music industry for more than a decade.

Still, the company has had trouble turning a profit. It plans to go public this year on the New York Stock Exchange, and has hired Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. to advise on its move to go public.

Spotify also signed two deals with the aim of improving future profit margins. The company will now license music from Universal Music Group and Merlin Network Group.

Universal is the largest record label in the world, while Merlin represents a group of independent labels.

In exchange for sharing a smaller percentage of its revenue, the labels received more flexibility in terms of how their music is distributed on the platform. The labels can now withhold new music from free users under the new deal.

Spotify has committed to paying at least 2 billion euros in royalties over the next two-year period.

Long-term deals with Sony Music Entertainment and Warner Music Group, two other major labels, are still being negotiated.

The company says it has corrected the errors on its accounting statements to account for payment processing issues, credit card charges, incorrect management bonuses and understatements on royalties.

This isn’t the first time the music streaming company has run into issues. In 2014, Spotify suffered losses of 25.9 million euros. The company is still struggling to become a profitable entity despite experiencing surging user growth in recent years.

In its most recent report, the company noted that it will remain focused on increasing its user base. Spotify is now available in 60 countries around the world, including Japan, the world’s second-largest music market.

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