Spotify’s raking in lots of money. However the online music company is burning through a lot more, a report by PrivCo this morning shows.

The organization founded by Daniel Eck and backed by Napster founder Sean Parker amongst others saw revenue explode 151 percent to $244 million in financial year 2011. That’s pretty awesome. Issue is, the price of growing the company rose 98 percent, and losses have skyrocketed 60 % to $59 million.

PrivCo, a New York private company analyst, claims it features a copy of Spotify’s latest financials. A PrivCo rep writes:

In fact, just about any new dollar of revenue went straight to music companies as royalty payments, evidencing the truth that the more members Spotify adds, the more money the company loses. This is a clear indication that the online licensing fee/royalty model is increasingly restricting Spotify’s capability to generate sustainable margins using its freemium model.
That’s merely the kind of news Parker, who may have invested in Spotify a European company which has expanded to the United States, released a mobile app, and integrated with Facebook doesn’t require this week. He’s facing doubts about Airtime, the mobile video chat company he and fellow Napster cofounder Shawn Fanning released this summer.

It’s also a sign that the royalties music businesses charge online radio operators like Spotify may be impossible to maintain. Sam Hamadeh, leader of PrivCo, said:

Spotify’s’s 2011 results show that drastic changes should be be made quickly to its business design in order to generate growth while actually improving operating prices so that break-even, not to mention profitability, is somewhere, anywhere, on the horizon. Either the internet music royalty payment model to artists and music businesses needs to change, which can be highly unlikely in the near term given that digital royalties are music business only growing revenue stream, or Spotify needs to ASAP introduce a tiered subscription system, instead of its current flat monthly fee model, which can be clearly a broken business design.