On the second Investor Day, streaming service Spotify briefed the financial community on the potential for continued growth and monetization despite the general economic downturn hitting the technology sector. The company devoted much of its presentation specifically to podcasts, which it said had been “largely unchanged” for years before coming to market, due to RSS’ limitations.
Spotify cited how unbundling podcasts from RSS technology has paved the way for Spotify to monetize these popular audio programs — a sentiment not universally liked by those who support an open podcast ecosystem. Spotify has disrupted that market by bringing in some podcasts, where they can only be heard on its service, and have followed competitors. This has broken the ecosystem and hurt consumers as some shows are no longer generally available.
“We have been able to replace RSS for distribution on the platform, meaning podcasts created on our platform are no longer hampered by this outdated technology,” Maya Prohovnik, Head of Talk at Spotify, told investors.
The company also highlighted the growth of podcasts on its service, noting that Spotify has more than 4 million podcasts today, up from 500,000 in 2019. 1,000 of these are operated by the company or licensed as exclusives. It also noted that its podcast creation tool Anchor has contributed to this growth, saying that the app powers 75% of podcasts on Spotify and that every new show created on Anchor has 2.5 million monthly actives. brings users to the service. †
Combined with its other hosting platform, Megaphone, Spotify says shows powered by its tools account for 45% of all podcast consumption on the platform.
But beyond the sheer number of shows available, Spotify highlighted the revenue-generating potential of its investments in this medium — investments exceeding $1 billion given its tool, ad technology and studio acquisitions, as well as internal development efforts. Those efforts have also put Spotify in a complicated position regarding which creators it chooses to platform and how much content is moderated, as the Joe Rogan PR crisis has shown. But Spotify has largely weathered that storm, as the hosting of the controversial podcaster failed to impact its ability to grow paid subscribers.
Spotify believes its long-term podcast revenue goals will be met as it advances its advertising technology, expands its podcast subscription business, and invests in new monetization tools for creators.
In prepared remarks published just before the start of Investory Day, Spotify CEO Daniel Ek spoke to the future revenue opportunities for podcasts, noting that his continued investments in this part of his business have dragged gross margin down.
He said Spotify’s overall gross margin is about 28.5%, which falls short of the company’s longer-term target of a gross margin of 30-35%.
“What drags it down is our move to podcasting,” Ek said. “We saw such an important opportunity to expand our platform and audience, so we decided to go aggressive after podcasting. And this represented a significant investment, which has clearly brought more listeners to Spotify and deepened engagement, but it also impacted our overall gross margin.”
Ek went on to note that Spotify’s podcast vertical “is still largely in investment mode and not profitable yet,” but he believes the market has “a potential of 40-50% gross margin.”
This is not only due to Spotify’s ability to monetize podcasts with ads, but also new initiatives such as podcast subscriptions. The company told investors it now offers podcast subscriptions — essentially paid podcasts — in 34 markets. The subscriber retention rate on the platform for this is 90% since its launch in 2021. It said it has partnered with more than 100 publishers and subscription platforms to date and is expanding.
Another new area of non-music-related audio investment outside of podcasts could then follow, Spotify said, speaking against its more recent entry into the audiobook market, now led by other service providers, such as Apple, Audible (Amazon), Google, Scribd, Audiobooks. com and others.
Today, the global book market size is estimated at approximately $140 billion. That includes print books, e-books and audiobooks, and audiobooks only have a market share of about 6-7%,” says Ek. “But if you look at the audiobook markets that have been most penetrated, that’s actually closer to 50% of the market. So call that a $70 billion dollar annual opportunity for us to expand and eventually compete for,” he added.
“We believe this presents a truly unique opportunity to introduce and dramatically expand audiobooks to music and podcast listeners around the world,” added Nir Zicherman, Head of Audiobooks & Gated Content Vertical at Spotify, to investors. “Our platform will soon be a place where consumers can buy and listen to their favorite audiobooks right in Spotify.” The offering would reach Spotify’s global audience of more than 422 listeners, he said.
The company also suggested it could use its existing machine learning models to grow the audiobooks category on the service through personalized recommendations, as it has done with music and podcasts. It expects this new industry to help increase the lifetime value of its user base, or LTV — a metric it says is more important now in measuring the health of its business than it was in days gone by when it was more focused on user growth. .
Like many other tech companies recently, Spotify has seen its share price plummet in 2022. The stock is down more than 50% so far and 70% below its all-time high. However, the company surpassed its own monthly active user support by 4 million in the first quarter, when it reported 422 million people used its service during the quarter. Still, it added just 2 million new Premium subscribers, less than the 3 million expected when it hit 182 million paying customers, in line with estimates. And the took in €2.66 billion ($2.81 billion) in revenue, up 24% year-over-year – but this fell short of analyst expectations.
Despite the current economic downturn, Spotify’s main message to investors has been that its company has growth potential, not only because its podcast investment is still early and yet to pay off, but because it is still finding new markets to expand into, such as it has now with audiobooks.
The company said it is on track to reach the peak of 1 billion users by 2030.
Ek concluded the presentation with the long-term forecast, saying the company will achieve $100 billion in revenue, 40% gross margin and 20% operating margin over the next ten years.
Among the stats highlighted during the event:
- 89% of Spotify Premium subscribers use Spotify on multiple devices, up from 75% in 2018
- Compound annual growth rates of 26% for monthly active users, 26% for subscribers and 26% for revenue on a currency-adjusted basis
- More than 2,000 partners, up from 250 in 2018; 28% of all new registrations come from partners, up from 14% in 2018
- More than 81% of listeners cite personalization as their best quality
- Monthly subscriber churn has fallen by 40% in the last 4 years
- Gross margin is about 28.5%, heading towards target of 30-35%
- The number of markets reached is 183 markets and territories, which have tripled in the last 4 years
- Number of new customers doubled from Q4 2021 to Q1 2022; 85% retention rate of existing customers; user base on the way to 1 billion listeners
- Q1 2022 revenue up 224% year-on-year
- Spotify Wrapped 2021 was the “most successful” Wrapped to date; was number 1 trending topic on TikTok and Twitter
- Terms of Google payment agreement not disclosed, but “beneficial for Spotify”
- US ad revenue in 2021 was now nearly a quarter of sales, compared to 1/10th globally
- 100 million users in Latin America
- On track to reach more than 1 billion users worldwide by 2030
- 83% of platform streams come from artists who use Spotify’s creator tools at least monthly
- The Discovery Mode program, powered by algorithmic promotion, had 98% customer retention and was used by over 50 labels/distributors
- Artists using Discovery mode increased listener count by more than 40%
- Concert Ticket Integration Has Generated $300 Million For The Music Industry
- Spotify now reaches almost a third of all approachable consumers in Western Europe, Australia and New Zealand
- Over 4 million podcasts, up 500K in 2019; “increasing number” audiobooks
- Believe podcasts can eventually have a GM of 40-50%; audiobooks can have more than 40% GM
- Anchor, owned by Spotify, powers 75% of podcasts
- Every New Anchor Show Brings 2.5 Extra MAUs to Spotify
- Between Anchor and our hosting platform Megaphone, Spotify powered shows account for 45% of all consumption on the platform
- Average subscriber retention rate on the podcast subscription platform is 90% since its launch in 2021
- Spotify’s original and exclusive shows made up 18 of the 100 best podcasts on the service
- Spotify produces or licenses 1,000 podcasts
- Top podcasts are (in order): Joe Rogan Experience, Armchair Expert, Call Her Daddy