Spotify released its Q2 earnings report yesterday (see RAIN coverage of the financials HERE), company executives Daniel Ek (CEO) and Paul Vogal (CFO) answered investor questions. Topics ranged from the recently announced subscription rate for Premium members (RAIN HERE) to company over-investment in podcasting, the Spotify Podcast Ad Network (SPAN), and the use of artificial intelligence.
Investment
Following the tone of Spotify’s Q1 report a few months ago, in which CEO Daniel Ek admitted to over-investing in podcast acquisitions, and promised to scale down spending, in yesterday’s Q&A session he noted: “The hurdle for any new investment that we’re going to make is going to be significantly higher going forward […] we probably got a little bit ahead of ourselves in that investment. And so we’ve rightsized our staff related to that.”
AI
Artificial Intelligence was bound to come up in the investor conversations. One question mentioned Spotify DJ — the most public AI product on the platform — and asked what future innovations might be coming. “We’re in the early innings of even seeing all of its potential,” Ek said sensibly. His further predictions were general, the first being AI improvements to music discovery — the algorithms that recommend music to individuals. (And he expressed a lot of love for Spotify DJ.)
The most interesting remarks about AI (in our opinion) related to podcasting, where Daniel Ek predicted AI-based understanding of what podcast episodes are about, and summarizing content to users. “By doing so,” he observed, “you can imagine it becoming a lot easier to merchandise new podcasts for consumers which drives in turn higher engagement and more growth for creators.”
The Price of Premium
The recent subscription price increase, announced the day before this meeting, got some attention. CFO Paul Vogel noted that the roll-out, and accruing benefit, will not be felt until Q4. This is due to a staggered completion of the new pricing, and natural accounting delays.
Very interestingly, one investor asked whether the $1 price increase on the Premium tier will affect Spotify’s royalty payments to music owners. Daniel Ek flatly declined to discuss particulars. But he said it wasn’t a zero-sum game, calling it a “growing pie,” and he evangelized the company’s relationship with its label partners.
The Ad Network
The Spotify Podcast Ad Network (SPAN) received slight attention. Paul Vogel said, “[SPAN] definitely helped podcast ad revenue. Podcast ad revenue got better throughout the quarter, as well in terms of growth rate. So SPAN was a big contributor to that.”
Always Competitors
TikTok’s recent groundbreaking deal with music labels, and that platform’s intent to set up a formal music streaming service, got some attention. Investors wanted to know how that competition affects Spotify. “Competition is nothing new,” Daniel Ek noted, then harked back to Q2’s positive growth metrics. The question was speculative; the answer uninformative.
“There are three ways for us to drive revenue growth. We can grow our users, we can create new business with new revenue streams, and we can increase revenue per user. Our preference among them is to focus on growing the overall number of consumers on our platform.” –Daniel Ek
“I believe that the speed of iteration is perhaps the ultimate leading indicator of our long-term success.” –Daniel Ek
