An unexpected quarterly profit — the first in the company’s history — wasn’t enough for Spotify to please Wall Street, after the music streaming giant posted tepid user and revenue growth when it reported its Q3 earnings on Thursday.
The Stockholm-based company announced earnings per share of €0.23 ($0.26) — running past analyst expectations of a loss of €0.24 ($0.26) per share. Revenue slightly beat analyst estimates, increasing 31 percent year-over-year to €1.35 billion ($1.54 billion), compared to estimates of €1.33 billion ($1.52 billion). Spotify posted a profit of €43 million, or about $49 million.
Spotify gained 4 million premium subscribers during the quarter — falling between the 2 to 5 million new paying customers the company had projected –hitting 87 million overall. The world’s biggest paid music service now has 191 million monthly users, an increase of 28 percent year over year.
Despite beating analyst expectations on financials and posting subscriber growth within its projections, shares of Spotify were rocked in early-morning trading, dropping 10 percent to about $135 per share. Spotify opened at $165.90 per share when it went public in April.
So what gives? Well, Spotify doesn’t anticipate it’ll churn out routine quarterly profits moving forward. Spotify’s boost came from its stake in Tencent Music Entertainment, following the Chinese conglomerate filing to go public earlier this month. The company had previously said turning a profit would be a “one-time, nonrecurring event.”
Spotify also reduced expectations for the fourth quarter, projecting it’ll hit between 93 million and 96 million for paying subscribers — after the company had initially guided for up to 97 million premium subs earlier in the year. Average revenue per user also dipped 6 percent to €4.73 ($5.39) per user, indicating the newer subscribers are joining on college or family plans.
In the latest episode of All Things Video, I’m joined by Bob Moczydlowsky, managing director of Techstars Music. Techstars is a startup accelerator that invests in early stage software businesses, with Bob dedicating his attention to companies at the intersection of music and technology. Prior to Techstars, Bob oversaw music information at Yahoo!, then joined Topspin for over five years until its acquisition by Beats by Dre, and most recently led U.S. music partnerships at Twitter.
We begin the conversation by examining social media’s impact on the music industry, from the early days of Myspace to Bob’s time at Twitter. Bob characterizes Myspace as “the first ever canonical URL for music,” which enabled it to become a premier destination for bands to promote themselves and engage with fans. This direct-to-consumer philosophy became the foundation of Topspin, where Bob and his colleagues sought to help artists book shows, sell merchandise, and otherwise make money after online piracy precipitated a sharp decline in physical sales. (You can listen to this podcast on Apple or right here.)
Today, the social media landscape looks rather different. According to Bob, social platforms are “so hyper focused on competing with each other and creating their own walled gardens and their own internal economics” that they forget about content creators and their audiences. “There’s still a lot of hubris in the way the platforms posture to artists about ‘Well you need us, so we’re not going to pay you. You’re going to keep making this because you need access to your fans, and we’re going to keep selling them back to you.'”
Bob and I consider opportunities for social media platforms to offer more engaging experiences for superfans without creating a bloated product and disrupting the user experience. We both agree that Instagram is the clear leader today, with Bob adding, “I’d like to see a commerce business get attached to Instagram.” Given the volume of influencer marketing and branded content happening on the platform today, it seems only a matter of time until a full retail experience is available.
We also debate the future of music streaming services like Spotify and Apple Music, which Bob views merely as version 1.0. As he points out, “They’re still modeled after a physical catalogue. They’re still organized as if you would organize albums on a shelf. They still have human curators. […] Give me media and music at the point where I want it based on what you know about me and my day.”
He’s absolutely right. Younger generations have no concept of radio stations or albums, holdovers from the era of physical distribution. They’re also less likely to rely on text-based search, so future streaming services will incorporate voice technology. Not only does this spare our tired fingers, it will also remove barriers to tech adoption, enabling less tech savvy, older, disabled, and illiterate audiences to easily access information online. Ultimately, the voice technology revolution is “fundamentally changing the operating system — the way that we interact with our devices and the way we’re going to organize and get information in the future.”
Finally, we explore how technology is transforming media to offer more personalized and interactive content experiences. Not only will our musical selections be tailored to the moment based on a variety of personal and environmental factors, so too will our film, TV, news, and gaming experience be curated by artificial intelligence. Technology has already radically changed media and entertainment in the last 30 years, and this is just the beginning.
Calling all podcasters: Spotify is testing a new program that aims to significantly increase the number of podcasts it offers.
The new program — aptly titled “Spotify for Podcasters” — will let podcasters “easily” share their feeds with Spotify and reach its 180 million users, the Stockholm-based company said in a Wednesday blog post. “For podcasters who run active podcasts and continue to publish episodes, new episodes will instantly be added to Spotify as soon as podcasters upload them to their host or aggregator,” the company said.
Spotify hopes to lure in more podcasts by offering several audience measurement tools — including stats on listener demographics, listener locations, and engagement.
While already grappling with Apple on the music battlefield, Spotify has increasingly looked to stake its claim to the growing podcast industry. Spotify started its push into original podcasts last year and recently launched its first branded original podcast series.
It makes sense why Spotify is doubling down on podcasts: U.S. podcasts pulled in $314 million in revenue in 2017, an 86 percent increase from the previous year. That’s bolstered by podcasts continuing to grow in popularity, with 17 percent of Americans 12 and older listening to a podcast on a weekly basis — up from 7 percent in 2013 — according to Pew Research Center.
Jeff Ponchick is the co-founder and CEO of Repost Network, a music distributor on a mission to help independent artists make a living from their work. Prior to Repost, Jeff was an early employee at Jukin and Fullscreen.
In the latest episode of All Things Video, we discuss digital’s tremendous impact on the music industry, from online piracy sites like Napster’s erosion of physical sales to the advent of digital distributors. The iTunes Store, which launched in 2003, pioneered transactional monetization and a consumer-purchasing shift from albums to singles. And Spotify, which followed in 2008, birthed a new era of subscription music services. (You can listen to this podcast on Apple or right here).
These digital distribution platforms weakened the power of traditional record labels and led to an explosion of new artists. As I observe during the show, “The scarcity problem is gone. Before, there was a limited amount of radio playtime. There was a limited amount of promotional space for physical distribution. And now, those barriers have been eliminated. Through online streaming services, anyone can create, release, and monetize their own content.”
This is a great sign of progress, but the music industry still has a long way to go. As Jeff explains, “Of the $38 billion per year in the music industry, only 12 percent of that is paid back to the artist.” This is largely due to unnecessary intermediaries and systemic inefficiencies for claiming royalties. But new technologies like blockchain offer promising solutions to the complex rights issues, while new monetization approaches offer independent artists more opportunities to earn a living than ever before.
Near the end of our discussion, Jeff and I evaluate the value gap between ad-supported and subscription-based streaming services, and we comment on the resurgence of touring and music festivals as a lucrative means of offline monetization. Finally, we offer a few predictions for the future of the music business, including the continued rise of independent artists.
Apple has closed its buyout of Shazam Entertainment, the parent company of music discovery app Shazam, the company announced on Monday.
The deal for Shazam — best known for giving users song information within seconds of hearing the lyrics — was first reported last December. The London-based company boasts more than 100 million monthly users and has been downloaded 1 billion times, according to Apple’s Monday release.
Terms of the deal were not disclosed, although TechCrunch reported in 2017 it would cost Apple more than $400 million.
Perhaps most noteworthy from Apple’s announcement, Shazam will soon drop its ad-supported free tier, which will make it “ad-free for all users.”
Despite being used 20 million times each day, Shazam has struggled to find a sustainable business model. The company reported last fall it lost about $5 million during its 2016 fiscal year on £40.3 million (about $54 million) in revenue. That doesn’t matter much to Apple, though, which will leverage Shazam to gain insight into listener habits as it battles Spotify for streaming supremacy.
“Apple and Shazam have a long history together. Shazam was one of the first apps available when we launched the App Store and has become a favorite app for music fans everywhere,” said Oliver Schusser, Apple’s vice president of Apple Music, in a statement on Monday. “With a shared love of music and innovation, we are thrilled to bring our teams together to provide users even more great ways to discover, experience and enjoy music.”
No management, no problem. If you think you’re the next Justin Bieber, but don’t have the major label backing to show the world your talents, Spotify has a fix for you, introducing a new feature on Thursday allowing indie artists to share their music directly to its platform.
The feature, still currently in beta testing, lets artists upload an unlimited amount of music for free via Spotify for Artists. Users will see a page allowing them to upload their music and artwork and pick a release date. The music won’t be instantly listenable to the app’s 180 million monthly users, a la Soundcloud, with Spotify recommending artists give the company five days to review content to make sure it doesn’t violate copyright laws.
“Just like releasing through any other partner, you’ll get paid when fans stream your music on Spotify. Your recording royalties will hit your bank account automatically each month, and you’ll see a clear report of how much your streams are earning right next to the other insights you already get from Spotify for Artists,” the company said in its blog post announcing the feature. “Uploading is free to all artists, and Spotify doesn’t charge you any fees or commissions no matter how frequently you release music.”
Allowing artists to directly share their music could revamp the streaming business — and potentially cut labels out of a significant cut of change. Spotify said it has tested the feature with a select group of indie artists to date. Not everyone can join just yet, however, with Spotify saying the feature will be available on an invite-only basis for the next few months. Artists hoping to get the invite can sign up for the company’s mailing list.
Spotify has released its most streamed songs of the summer on Monday, and it’s probably not hard to guess which artist came out on top. We’ll give you a hint, though: “Kiki, do you love me?”
That ubiquitous phrase propelled Drake’s “In My Feelings” to the top of Spotify’s global rankings, with 393 million streams between the beginning of June and the end of August.
Cardi B, 2018’s breakout hip-hop artist, was in the next two spots, with her feature on Maroon 5’s “Girls Like You” barely edging her “I Like It” single from her debut album. Combined, the two songs racked up more than 580 million streams this summer.
Rapper Juice WRLD’s “Lucid Dreams” came in fourth, and was dubbed the “breakout star of the summer” by Carl Chery, Spotify’s head of urban music, in a blog post. XXXTentacion, who was killed in June, grabbed the fifth spot with “Sad!”
In addition to having the biggest hit of the summer, Drake had an additional four songs in the top 20, including “God’s Plan” and “Nice For What.”
You can check out the full list of top global songs below.