Financial results for the second quarter show the streaming giant Spotify has not yet been affected by the impending global recession. Spotify, in contrast to Netflix, which recently reported a decline in total subscribers, has seen an increase in subscribers of both the free and paid varieties. A total of 433 million people are now using it, up from 422 million at the end of the first quarter. Six million more people have upgraded to Premium in the past three months, bringing the total number of paying subscribers to 188 million; an additional 4 million have signed up for the free, ad-supported version.
Spotify has managed to avoid the budget cuts that have been predicted for the entertainment industry as a whole. The firm noted that it was “pleased with the resilience of [its] business,” despite keeping a close eye on the “uncertain” environment. However, the company did invest heavily in marketing to increase its user base by appealing to former subscribers and those interested in upgrading to a family subscription.
Due in large part to these marketing expenditures, Spotify reported a quarterly loss of €194 million ($197 million). The company expects subscription and advertising revenue to increase dramatically to make up for the losses. Even if recording artists continue to show that they are being starved of an income by the piddly royalties paid out on a per-stream basis, Spotify’s plan to pivot toward cheaper forms of audio content, like podcasts and audiobooks, should see the volume of cash it pays to record labels fall to a more manageable (for Spotify) level.
Industry-wide concerns that households will reduce entertainment spending to free up much-needed cash have not yet affected Spotify’s business model. The firm noted that it was “pleased with the resilience of [its] business,” despite keeping a close eye on the “uncertain” environment. However, the company did invest heavily in marketing to increase its user base by appealing to customers who had previously cancelled their subscriptions or who wanted to upgrade to a family plan.
Spotify reported a quarterly loss of €194 million (about $197 million) due in part to its hefty advertising budget. The company expects that sharp increases in subscription and advertising revenue will more than make up for those losses. Additionally, it plans to shift toward less expensive forms of audio content, such as podcasts and audiobooks, which should reduce the amount of cash it pays to record labels to a more tolerable (for Spotify) level, despite the fact that recording artists continue to demonstrate that they are being starved of an income due to the meagre royalties paid out on a per-stream basis.
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Spotify attributes its largest ever second-quarter growth to reactivations in Europe and “Gen Z strength” in Latin America, among other factors.
As a result of shutting down its Russian operations in April, Spotify expected to see slower growth. Until the end of June, CEO Daniel Ek anticipated having 187 million paying subscribers and 428 million monthly active users.
Ad revenue for Spotify increased by 31% to $365 million, “reaching a record high as a percentage of total revenue at 13%.” Revenue rose 23% to €2.86 billion ($2.90 billion), largely due to an increase in ad sales, and average revenue per user increased by $0.40 to $4.60.00. However, the company still lost €194 million ($197 million) during the quarter on operating and €125 million ($127 million) on a net basis.
The success of Spotify, as noted by The Verge, has come at a time when the podcasting industry is experiencing difficulties. After Alex Goldman and Emmanuel Dzotsi left Gimlet to start their own production company, the podcast “Reply All” aired its final episode on June 23. Additionally, the Obamas signed with competing podcasting platform Audible rather than re-upping with Spotify, which their deal with the latter service expired at the end of 2019.
The Joe Rogan Experience, hosted by the controversial comedian, is one of the reasons why Spotify continues to attract a large number of podcast listeners. Rogan reportedly has a $200 million deal with Spotify.
During the month of January, musician Neil Young demanded that Spotify remove his songs because of Rogan’s “disinformation” about vaccines. While the campaign expanded to include music from a number of different artists, the podcast’s 11 million weekly listeners remained steadfast.
The increase in premium subscribers to 188 million exceeded projections made by industry experts, who had predicted 187 million. The number of monthly active users has grown by 19% to 433 million. The consensus forecast for new subscribers was 428 million.
After rapidly expanding its workforce in the first two quarters of 2018, Spotify slowed its hiring pace by 25 percent in the third quarter. Additionally, the company’s focus has shifted to include marketing efforts. A person familiar with the matter claims that Spotify Technology SA CEO Daniel Ek informed employees via email that the company would be cutting back on hiring by 25%.
Ek said Spotify would keep hiring even though it would slow down hiring “and be a bit more conservative” in the coming quarters. The company predicted that it would have 194 million paid customers in the current quarter, which was in line with projections. It expects revenue of EUR 3 billion (roughly Rs. 24,360 crore), up from the consensus estimate of EUR 2.95 billion (roughly Rs. 24,000 crore).
Spotify has spent over a billion dollars on the acquisition of podcasts like The Joe Rogan Experience and other companies in an effort to attract listeners to the growing non-music audio category. The company said that podcast listeners hit a new quarterly high, with the number of available podcasts reaching 4.4 million. The company expects to have 450 million monthly active users by the end of the third quarter.