Much, but not all, of the conversation in Spotify’s earnings call yesterday was about podcasting and the company’s investments. CEO Daniel Ek also articulated the company’s main strategic thrust.
“The primary opportunity, as we think about the long-term is in the linear radio experience by moving online and into on-demand. That is the eye on the prize, the one that we are chasing.” –Daniel Ek
“We are very much still in the investment phase of Spotify.” –Daniel Ek
Validating the Podcast Investments
“We’re early on in our podcast platform monetization efforts.” –Daniel Ek
Early in the call, Daniel Ek bragged about podcast volume on the platform — in one year the number of available shows has grown from 700,000 to 2.2-million. At the same time, Spotify has “significantly grown” the number of podcast listeners. He evangelized Spotify’s investment in original podcast development, and said it’s too early to know the “compounding effect” of that development.
What is the overarching podcast strategy? Here is Ek again: “We already have a massive user base on Spotify today, how can we turn them into podcast listeners?”
This is an important point, and relates to a downgrade of SPOT stock issued by Citi a couple of weeks ago. In that criticism, Citi noted that Spotify’s podcast accumulation was not driving new subscription sign-ups. While Ek did not mention the downgrade, he seems to say that one function of Spotify’s massive podcast library isn’t primarily to drive new subscriptions, but to convert some of the existing base into podcast listeners. This makes sense financially, as music royalties make music listening an expensive feature for Spotify, and shifting that listening to royalty-free podcasting could reduce the cost of overall platform listening.
On that line of thinking, Ek noted that one quarter of Spotify’s user base listens to podcasts on the platform. That is 86-million people.
All that said, bringing in new users via podcasts, especially exclusive shows, is certainly a strategic goal. “You will see us going outside and trying to convert more and more of the outside users who are not yet Spotify listeners to come onto the platform,” Ek said. “And I think exclusives will be a material part of that strategy.” He referred to “many more” exclusives in the 2021 pipeline.
Later in the call, CFO Paul Vogel said that Sptofiy’s investment in podcasting carries “an expectation of potential new users.” He also noted: “You continue to see us invest in podcast and podcast content; it’s because we are seeing the benefits within our ecosystem.”
New Subscription Models
One investor asked whether Spotify would experiment with new ways for consumers to pay into the service. Daniel Ek noted that student plans and family plans were already established. Then he said this interesting bit:
“I think we’re in the early days of seeing the long-term evolvement of how we can monetize audio on the Internet.” –Daniel Ek
He didn’t elaborate much, but did mention some kind of mix of subscription and advertising, and a-la-carte payment plans.
On the Advertising Side
Ad-supported listening on Spotify is used by about half the total user population, but contributes only about 12-13% of total revenue. Part of the role ad-supported listening plays is to funnel users into the higher-margin Premium subscription level. Daniel Ek noted that the ad business exceeded expectations, even as he admitted to inconsistent growth. He said the company was putting more resources into it, and that one issue is scarcity of inventory.