It’s likely that while you read this, Spotify is streaming a song or a podcast; as this sentence is written, the Sweden-headquartered service is playing music to soothe and focus – as a result, lockdown has delivered a strong end to Spotify’s first quarter.
Despite the uncertainty brought on by COVID-19, “Q1 was a strong quarter for Spotify,” said CEO Daniel Ek in a call with investors.
As of Q1, 130 million paying subscribers are now signed up to Spotify, a year-on-year increase of around a third. A widespread shift to working from home, along with school closures that mean whole families are now attempting to sit down and focus on their respective tasks
Total users (including those using the ad-supported free tier) grew to 286 million, just one million shy of Wall Street forecasts.
Podcast listening on the platform grew “by triple digits” in the quarter compared to Q1 2019, despite a broader contraction in listenership in mature markets like the US. Unlike many other media companies for whom social distancing has created a major – and often insurmountable – barrier to making films, podcasts are different. “Almost all of our original and exclusives have either maintained or increased their pace of new releases in response to audience demand,” Ek said.
Investments in the ecosystem of podcasting are working. “More than 70% of new podcasts on Spotify were created with Anchor and within our own ecosystem.” Anchor formed part of Spotify’s 2019 podcast spending spree, with the podcast creation platform costing an estimated $140 million. With news this week of Anchor’s new feature that allows users of videoconferencing software to record podcast-ready audio directly, the company has shown both shrewdness and pace.
Lockdowns’ strange effects caused a dip in daily listenership in hard-hit markets like Italy and Spain, though Ek claims that the last few weeks have pointed to a rebound “in a big way”. Though the company estimated that as those initial declines began, monthly active and paying users would both follow, what actually happened was a big surprise. “Both new and reactivated MAUs grew substantially even during lockdown periods in major markets.”
Benefit of a free tier. Despite the likely economic downturn causing some customers to cut their subscriptions, Spotify will continue to have a basic tier to continue to serve users. “The majority of our competitors do not have a free tier. And that, of course, makes Spotify a more appealing option in this environment. This should allow us to expand the pool of subscribers available to us as the economy recovers.” Ad revenues, however, present a bit of a problem. More on that later.
The 20-year trend and a competition against behaviour. Echoed by Spotify executives at events around the world, one of the company’s core beliefs is that “everything linear dies, and on-demand wins”. Ek imagines the COVID pandemic accelerating this trend. Similar to Netflix CEO Reed Hastings comment that sleep is a competitor to the platform, Ek’s vision of the true competition is similarly invasive.
“In my mind, our competition is actually those learned and long-held user behaviours. For us, it will always be about capturing the share of time listeners spend elsewhere and prove out that their time is far better spent with us.”
Commute listening is replaced by TV and video game listening. Listening in car has, obviously, declined but “listening on gaming consoles is exploding”, Ek explained, later adding that in-home usage at large was up more than 50% in the quarter. “The trend has been much more instrumental music, much more classical music. Chill music has been up.”
Advertising. Like other business segments dependent on ad spend, Spotify’s free tier saw a slump in spending by as much as a fifth less than the company had forecast. This said, advertising represents just a tenth of the company’s overall revenues, meaning it is less exposed than commercial radio.
It hastens another trend, Ek believes: “We suspect that our advertisers will shift from pure reach to more measurable ad formats, of which ad formats are obviously a lot better compared to analogue ad formats.”
Sourced from Spotify, Axios, Techcrunch, Fast Company