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Eleven Months
Ended€
€December 31,
Twelve Months
Ended€
€December 31,
Twelve Months Ended€
€December 31,
2013 2014 $€Change 2014 2015 $€Change
(in€thousands) (in€thousands)
Cost of revenue—
Content acquisition
costs $314,866 $446,377 $131,511 $446,377 $610,362 $163,985
€
Content Acquisition Costs as a Percentage of Advertising Revenue by Platform
€
Eleven Months Ended€
€December 31,
Twelve Months Ended€
€December 31,
2013 2014 2015
Computer 34%34%41%
Mobile and other connected devices 58%53%55%
€
Cost of revenue—content acquisition costs principally consist of royalties paid for streaming music or other content to
our listeners. Royalties are currently calculated using negotiated rates documented in agreements. The majority of our royalties
are payable based on a fee per public performance of a sound recording, while in other cases our royalties are payable based on
a percentage of our revenue or a formula that involves a combination of per performance and revenue metrics. For certain
royalty arrangements, we accrue for estimated royalties based on the available facts and circumstances and adjust these
estimates as more information becomes available. The results of any finalized negotiation may be materially different from our
estimates.
€
We estimate our advertising-based content acquisition costs attributable to specific platforms by allocating costs from
royalties payable based on a fee per track to the platform for which the track is served and by allocating costs from royalties
based on a percentage of our revenue in accordance with the overall percentage of our revenue estimated to be attributable to
such platforms. While we believe that comparing disaggregated content acquisition costs and revenues across our delivery
platforms may provide directional insight for evaluating our efforts to monetize our service by platform, we do not validate
such disaggregated metrics to the level of financial statement reporting. We continue to refine our systems and methodologies
used to categorize such metrics across our delivery platforms and the period-to-period comparisons of results are not
necessarily indicative of results for future periods.
For the twelve months ended December€31, 2015 compared to 2014, content acquisition costs increased $164.0 million
or 37%, primarily due to an increase of $65.4 million related to pre-1972 sound recordings in the twelve months ended
December 31, 2015, of which $57.9 million was related to a one-time cumulative charge to cost of revenue - content
acquisition costs for the pre-1972 sound recordings settlement. In addition, cost of revenue - content acquisition costs increased
by $28.2 million related to publisher royalty rate increases in the twelve months ended December 31, 2015, of which $23.9
million was related to a one-time cumulative charge to cost of revenue - content acquisition as a result of our decision to forgo
the application of the RMLC publisher royalty rate from June 2013 to September 2015. Cost of revenue - content acquisition
costs also increased due to scheduled sound-recording royalty rate increases of 8%.€Content acquisition costs as a percentage of
total revenue increased from 48% to 52%, primarily due to the increased royalties related to pre-1972 sound recordings, RMLC
publisher royalties and scheduled sound-recording royalty rate increases of 8%, offset by an increase in advertising sales.
Estimated content acquisition costs as a percentage of the advertising revenue attributable to our computer platform increased
from 34% to 41%, and estimated content acquisition costs as a percentage of the advertising revenue attributable to our mobile
and other connected devices platform increased from 53% to 55%, in each case primarily due to the increased royalties related
to the pre-1972 sound recordings settlement, RMLC publisher royalties and scheduled sound-recording royalty rate increases of
8%, offset by an increase in advertising sales on both the computer and mobile and other connected devices platforms.
For the twelve months ended December 31, 2014 compared to the eleven months ended December 31, 2013, content
acquisition costs increased by $131.5 million or 42%, primarily due to an approximate 20% increase in listener hours and
scheduled sound-recording royalty rate increases of 8%. In addition, the remaining increase in content acquisition costs was
due to the€twelve months ended€December€31, 2014€having one additional month as compared to the€eleven months ended
December 31, 2013. Content acquisition costs as a percentage of total revenue decreased from€52%€to€48%, primarily due to an
increase in advertising revenue and a $14.2 million increase in subscription revenue in connection with the one-time
recognition of the accumulation of deferred revenue related to certain subscriptions purchased through mobile app stores. Refer
to “Deferred Revenue” above for further details regarding these mobile subscriptions. Estimated content acquisition costs as a
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