Spotify

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Spotify ($SPOT) is a digital music, podcast, and video streaming service that gives users access to millions of songs and other audio content from artists all over the world. It was founded in 2006 in Stockholm, Sweden, by Daniel Ek and Martin Lorentzon, and launched in October 2008. Today, Spotify is available in more than 90 countries and has over 345 million active users, making it one of the most popular music streaming services in the world.

Quarterly Results

All quarterly results: Spotify:Quarterly_Results

Management

December 7, 2023: Spotify CFO Paul Vogel to leave the company in March 2024. The company said it has begun the search for a new CFO. As Spotify searches for a new CFO, Vice President of Financial Planning and Analysis Ben Kung will take additional responsibilities to support the financial team. “Spotify has embarked on an evolution over the last two years to bring our spending more in line with market expectations while also funding the significant growth opportunities we continue to identify. I’ve talked a lot with Paul about the need to balance these two objectives carefully. Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences," CEO Daniel EK said in a statement. Paul Vogel joined Spotify in 2016 as head of investor relations, financial planning and analysis, and treasury teams and was promoted to the CFO position in 2020, replacing Barry McCarthy who resigned. Before joining Spotify, he was managing director and head of the internet and media equity research team at Barclays. He also worked at AllianceBernstein as a portfolio manager and at Morgan Stanley as a research analyst. Vogel sold shares worth $9.3 million after the recent layoff. Vogel joins Taj Alavi (head of marketing since 2021), Jenny Hermanson (managing director for the Nordic region since 2015), and Tom Connaughton (managing director for the UK and Ireland since 2018) who are leaving the company. Assessment: Given that some other senior executives have left the company following the layoff, Vogel may have been fired or didn’t agree with the huge headcount reduction. We consider his departure as positive for the company given that costs ballooned during his tenure. Investors such as ValueAct, which managed more than $9 billion in assets in 2019 criticized Spotify’s operating expenses. However, such high-level departures tend to create instability in the company’s operations.

February 21, 2022, it was announced that Max Cutler, Spotify's head of audio talk shows and partnerships will leave the company on May 1. His exit follows that of Dawn Ostroff who was in charge of content and advertising. Max oversaw partnerships such as Joe Rogan, Emma Chamberlain, and Alex Cooper of Call Her Daddy. He joined Spotify in 2019 after the company acquired his podcast network Parcast.

February 10, 2022, ValueAct Chief Executive Officer Mason Morfit said that they had taken a stake in Spotify. ValueAct is known for working with management to bring change within the company. Mason did not disclose how much stake they had taken in the company but he believes that the company is on the right track. He said, "“Spotify’s superpower was combining engineering breakthroughs with organizational abilities — it organized creators and copyright owners to build an entirely new economic model that benefited everyone involved.” He also added, " “During the boom, it applied these powers to new markets like podcasts, audiobooks and live chatrooms. Its operating expenses and funding for content exploded. It is now sorting out what was built to last and what was built for the bubble.” As of 2021, ValueAct had more than $13 billion in assets under management. Its Q3 2022 13F filing showed $5,902,272,000 in managed 13F securities and a top 10 holdings concentration of 99.86%.

Technology and Usage

August 8, 2023: Spotify expands its AI DJ feature to 50 more markets globally. However, a vast majority of European countries won't access the feature yet. Additionally, the feature is still in beta version and will only be available to premium subscribers in the new markets. AI DJ is located on the "music" section.

July 19, 2023: Spotify launches shared volume control, a technology that enables listeners to adjust the volume of a song when they are sharing a compatible speaker with the host. The new feature is aimed at improving its group session, a premium-feature launched in 2020. Group session enables multiple users to choose what music is playing in real-time and add songs to the playlist.

June 9, 2023: Spotify is testing "Your Offline Mix", a playlist that downloads your recent favorites automatically. "We’ve been testing out a new feature called "Your Offline Mix"- a playlist designed for those times when you might not be online." CEO Daniek Ek said in a tweet. The company did not indicate when they plan release it but some users noted that they have already seen the feature.

May 2, 2023: Spotify-owned Findaway Voices eliminates its 20% distribution fee for audiobooks purchased on Spotify. The move is aimed at increasing earnings for author, which in turn will court more independent authors into the platform.

May 16, 2023. Spotify expands AI powered feature "DJ" to UK and Ireland users. Spotify noted that Gen Z and millennials enjoyed the feature as they accounted for 87% of its users. Additionally, people who the feature will spend about 25% of their listening time on it.

March 15, 2023. Spotify co-president Gustav Söderström said that Spotify HiFi will still come.“We are going to do it, but we’re going to do it in a way where it makes sense for us and for our listeners. The industry changed and we had to adapt.” He said.

Söderström did not provide more details on it such as when the lossless experience is expected.

Spotify announced two years ago that it will launch HiFi. Its plan was to launch it as a premium tier before the end of 2021. According to the Verge, Spotify HiFi has been ready for more than a year and its employees are already using it. The Verge notes that Spotify's plan to launch it could have been interrupted by Apple, which offers lossless experience as part of its music free of charge.

March 9, 2023. Spotify's new mobile design could have a positive effect on Spotify usage, fundamental value and the stock price. The new design will enable users to have access to new feautures such as “Smart Shuffle” mode for playlist recommendations, a new podcast autoplay feature and more." TechCrunch noted that "Some features, like Smart Shuffle, will only be available to subscribers, while others — like the new TikTok-inspired feeds — will roll out to everyone. However, the features’ availability will reach some markets before others and will arrive at different intervals." Additionally, "the new design will be immediately noticeable upon the first launch of the updated app."

On February 22 2023, Spotify launched "DJ", a new AI feature aimed at improving music listening experience for its users. The Open-AI powered feauture provides spoken commentary about the tracks and artists you like. It also generates a curated list of those artists and tracks. It is currently in a beta testing and is only available to Spotify English subscribers in U.S and Canada.

Regulatory Environment

January 26, 2023: Spotify says the Apple changes go against the DMA Act. “Under the false pretense of compliance and concessions, they put forward a new plan that is a complete and total farce. Essentially, the old tax was rendered unacceptable under the DMA, so they created a new one masquerading as compliance with the law,” It said in a statement. The company added that the changes will not work out for them. “Under the new terms, if we stay in the App Store and want to offer our own in-app payment, we will pay a 17% commission and a 0.50 cent Euro Core Technology Fee per install and year. This equates for us to being the same or worse as under the old rules. And if we managed to remove our app from the App Store and only existed in the Alternative App Store, that would still not work. With our EU Apple install base in the 100 million user range, this new tax on downloads and updates could skyrocket our customer acquisition costs, potentially increasing them tenfold. This, as we have to pay on every install or update to our free or paid app, even for those who no longer use the service.” It pointed out that their recently announced plans for EU users are now less clear.

January 25, 2024: Apple revamps its app store to allow users in the EU to download software from outside the App Store, use alternative payment systems and choose a new default browser as a way of addressing the requirements of the DMA Act. The company also lowered its App Store Commission fee from 30% to 17% for digital goods and servIces and to 10% after the first year for most developers. However, Apple is introducing two new fees: a 3% payment processing fee for apps purchased through its in-app purchase system and a €0.50 fee per app installed via third-party marketplaces as long as the software was installed more than 1 million times in a 12-month period. Apple said more than 99% of developers in the EU will see their payment decrease or stay the same while less than 1% will pay the app install fee. Assessment and additional information: The new terms imply that Spotify can direct its users to its third-party app store; hence avoiding the new Apple app store commission of 17% or 10%. However, it would still be required to pay the app installation fee of €0.50 for apps with more than 1 million downloads in a year, which could amount to a lot. Epic Games CEO Tim Sweeney has criticised the new changes saying the new business terms amount to “junk fees”. I expect Spotify to do the same. Apple says the changes meet the requirements of the DMA Act. This may not be true given that there is no clause in the Act that stipulates it can introduce a fee for sideloading. However, Apple can use a clause that says the company can introduce measures to ensure security of its app store to defend the new business terms. Margrethe Vestager, the EU’s antitrust chief, said they will examine if Apple is attempting to follow the new rules or go around them. “That’s what will be our test of it,” she said during a briefing with journalists. “Is this a way to circumvent the intention of the legislation?”

January 24, 2024: Spotify says it will allow in-app purchases of subscriptions and audiobooks in Iphones in the European Union. The company credited the changes to the Digital Markets Act (DMA) which will take effect in March 7 and which rquires the likes of Apple to allow app developers to bill customers and distribute apps outside the App Store. “The DMA means that we’ll finally be able to share details about deals, promotions, and better-value payment options in the EU. And an easier experience for you means good things for artists, authors, and creators looking to build their audiences of listeners, concert-goers, and audiobook-loving fans. What’s more? All of this can now come without the burden of a mandatory ~30% tax imposed by Apple, which is prohibited under the DMA,” Spotify said in a statement.

January 17, 2024: Once again, Spotify slams Apple for introducing new policies that enable users to make purchases through links that bypasses Apple’s own App Store payment system (which it charges 30%). Developers will pay a commission of 27% and a payment processing fee for such payments. The new policies were introduced after the US Supreme Court declined an appeal launched by Apple and Epic Games following a long court battle that found Apple violated anti-competition law. “Once again, Apple has demonstrated that they will stop at nothing to protect the profits they exact on the backs of developers and consumers under their app store monopoly,” Spotify said in a statement. However, the EU’s Digital Markets Act (DMA) will finally put an end to this false posturing, which is essentially a recreation of Apple’s fees. We strongly urge the European Commission to act swiftly and decisively to prevent Apple from implementing similar fees, which are prohibited under the DMA.”

December 18, 2023: Spotify slams the French government for proposing to introduce a tax on streaming services, saying that it will be a blow to European firms given their strong presence in France. According to Antoine Monin, Director General of France, though Spotify can absorb the tax, it is “in a fragile financial balance.” The bill proposes to impose a 1.75% tax rate on music streaming companies like Spotify. France is currently ranked the sixt largest recorded music market in the world having generated a revenue of €920 million from recorded music in 2022.

December 12, 2023: Spotify says it will continue its services in Uruguay after the government clarified that artists will be responsible for the costs included in the new bill.

December 1, 2023: Spotify said it will start to phase out its services in Uruguay on January 1, 2024, and fully cease it by February due to changes in government policy. Recently, the government of Uruguay passed a bill that would make Spotify pay artists twice what it pays at the moment (70% of revenue generated from content). Spotify said it will move premium subscribers to a Free account at the end of December.

Market Share

Lisa Yang, MD of Media & Internet at Goldman Sachs’ Global Investment Research, said in the August 30 Business Worldwide Podcast that Spotify’s market share has been stable since 2017. “Spotify is probably the most important independent music streaming ‘pure play’, and competes against services that are part of larger tech conglomerates, that obviously have deep pockets and don’t necessarily think about music [as] the center of their profit pool. Despite that, and despite the proliferation of new services… what you find is that, outside of China, if you look at the [global market] share of Spotify, it has been actually broadly stable since 2017, at around 41% or 42%," she said. She expects Spotify’s market share outside China to decline only to about 39% over time. Yang expects YouTube Music to become the second-largest DSP by 2030. “Outside of Spotify, what’s interesting is [that] YouTube Music has been taking the most share amongst the major DSPs. We do think YouTube Music will probably become the second-largest DSP by 2030, overtaking Apple Music," she said. In their latest Music In The Air report Yang and her team estimate that Spotiy had a 34.8% global market share in 2022( 2021: 35.4%) but said that its share loss decellerated in 2022. On the other hand, YouTube Music had a market share of 12.7% in 2022(2021:12.0%). “YouTube Music has now gained almost 3ppt of market share over the last 3 years. YouTube reported >80mn YouTube Music/Premium accounts in September 2022 (including those in trials), a 30mn increase from Sept 2021," they said. They expect Spotify to maintain a market share achieved in 2023 of 34.7% and are forecasting its market share to be 32.9% in 2030.

Spotify Podcasts and Audiobooks

See also Podcasting and Audiobooks Industry

Spotify Podcasts

February 2, 2023: Spotify reaches a new multiyear partnership deal with Joe Rogan Experience. "There’s so much more ahead, including that the show will soon be available on additional platforms. JRE remains podcasting’s king, consistently ranking as the most-listened-to podcast globally and our users have ranked the show as Spotify’s Wrapped top podcast each year since 2020, " Spotify said in a statement. The Wall Street Journal estimates the multiyear deal to be worth $250 million and will have a minimum guarantee and a revenue-sharing agreement based on ad sales. Additionally, the deal will allow Spotify to distribute the JRE ads in other podcast platforms such as YouTube. The journal says Spotify had paid Joe Rogan more than $100 million to make the show exclusive to Spotify and the estimated payout (tied to audience target) at the end of its term this year will be around $180-$200 million.

December 12, 2023: Warner Bros said Spotify's podcast platform, Megaphone, will start hosting and distributing its podcasts. The podcasts will also be monetized via Spotify Audience Network. Warner Bros said that in the last 12 months, Spotify Audience Network has seen growth of advertiser participation and opted-in publishers by over 45% and 70%, respectively.

December 4, 2023: Spotify cancels two acclaimed podcasts, the Heavyweight and Stolen as it withdraws from in-house productions.

September 1, 2023: As part of Spotify's crackdown on white-noise podcasts, effective October 1, white noise podcasters will no longer be eligible for Ambassadar Ads Program. Under the program, Spotify pays podcasters to read ads in order to encourage others to make content and join the program. Additionally, Spotify is raising the threshold requirement to join the program from 100 unique listeners in the past 60 days to 1,000. Therefore, going forward, white-noise podcasters can only make money from paid subcribers, listener support and automated ads placed in shows. Last week, Spotify said it plans to invite more podcasters to take part in automated adds. Revenue from these ads will be divided in half between the company and podcasters as opposed to the flat rate based on ad impressions that was originally used.

August 17, 2023: According to Bloomberg, White noise and ambient podcasts accounted for 3 million daily consumption hours on Spotify as of January. These podcasts that doesn't involve any people talking, have been unintentionally boosted by the company's “algorithmic push for ‘talk’ content (versus music)." After Spotify noticed that it was promoting white noise podcasts, it considered pulling them out of its talk feeds, banning future uploads and sending users to other economical content. Doing so, could increase Spotify's annual gross profit by €35 million($38 million), according to documents seen by Bloomberg. However, the plan never materialized. “The proposal in question did not come to fruition — we continue to have white noise podcasts on our platform,” a Spotify spokesperson responded in an email to Bloomberg. Still, some white noise podcast creators have seen their podcasts go missing.

June 29, 2023: The number of Spotify video podcasts has grown to 100,000 from 70,000 in March. Most video podcasts are published in U.S., Brazil, Mexico, the U.K., and Germany. Video podcasts is also seeing great adoption in Philippines, where "video podcasts account for over half of podcast consumption." "We’ve charted consistent positive growth in audience retention and episode listenership among shows that have adopted video to date," Spotify said in the statement.

June 8, 2023: Spotify will make podcast exclusives available in other platforms in order to attract more listeners and increase podcast revenue, that's according to people familiar with it. Armchair Expert will soon be available in other platforms while Audio version of Anything Goes is already available in Apple.

June 5, 2023: Spotify to lay off 2% of its workforce or 200 employees, mainly from the podcast division. Additionally, Gimlet Media and Parcast will merge into Spotify Studios while the Ringer will continue to operate independently. Sahar Elhabashi, vice president and head of podcast business said that podcast listeners on Spotify has grown to 100 million since 2019, representing 10% growth, while consumption has grown 1,400%. Additionally, Podcast content has grown from 200,000 titles to over 5 million shows on Spotify while podcast ad revenue saw high double-digit growth from 2021 to 2022. Elhabashi added that they are now focusing on a "tailored partnership approach" instead of a uniform one in order to support the creater community better. In light of this, the company is also conducting internal realignment of senior podcast executives.

Spotify Audiobooks

September 7, 2023: Spotify plans to offer its premium customers free audiobooks for a limited time as part of a test to gauge user interest. Subcribers will be able to listen to up to 20 hours of free audiobooks a month. Spotify is currently working with some of the largest audiobooks publishers in the U.S. A number of compensation models for the publishers have been discussed, including payment based on the number of hours a user spend on the audiobooks. The test will be launched in a number of english-speaking countries, including the U.S., Canada, Australia and the U.K. Under the pilot program, users will access the audiobooks directly from Spotify App.

March 22,2023. Spotify expands its audiobooks to Canada, making them available in both English and French. It said its audiobooks catalog has now grown to 350,000 titles from the 300,000 initially. The company added that it is “seeing positive engagement,” among audiobooks users.

AI

May 23, 2023: Spotify is developing an AI technology that will use the podcast's host voice to create host-read ads, without necessarily having to read and record the ad copy. This is according to The Ringer founder Bill Simmons who said, “There is going to be a way to use my voice for the ads. You have to obviously give the approval for the voice, but it opens up, from an advertising standpoint, all these different great possibilities for you.” The Ringer was acquired by Spotify in 2016 for $196 million. Bill Simmons said these ads will open create opportunities for podcasters because they could be geo-target ads. For instance, with the host's permission, the AI could create ads for a listener's local event or even create ads in different languages.

May 9, 2023: Spotify purges 7% of songs(equivalent to tens of thousands of songs) uploaded by AI start-up Boomy. This comes as the company ramps up policing of its website following complaints of fraud in the music industry. -Boomy said its users have created more than 14 million songs. “Artificial streaming is a longstanding, industry-wide issue that Spotify is working to stamp out across our service,” Spotify said.

Pricing

September 12, 2023: Spotify CEO Daniel EK has come out to refute a JP Morgan analysis that said artists could make $1,200 a month in royalties by posting a 30-second song and replaying it 24 hours a day. JP Morgan went ahead to estimate that 10% of all music streams are fake, where artists run loops on services like Spotify. "If that were true, my own playlist would just be 'Daniel's 30-second Jam' on repeat! But seriously, that's not quite how our royalty system works," Daniel said in an X reply post.

July 24, 2023: Spotify raises prices of its premium plans by $1 in the U.S. The company is also raising prices in a number of other countries including the U.K. Premium Single will now cost $10.99 and duo will cost $14.99. Premium Family will cost $16.99 while Premium Student will cost $5.99.

July 19, 2023: According to the Wall Street Journal, Spotify is set to increase the price of its premium plan to $10.99 per month from $9.99 in U.S. The price increase will be followed in other global markets later in the year. The planned change is expected to be announced next week.

June 20, 2023: Spotify to introduce a more expensive subscription plan in October, according to people familiar with it. The subscription option duped “Supremium” will likely include high-fidelity(HiFi) audio feature, which was announced by the company in 2021. HiFi was delayed by Spotify after its two competitors, Apple Music and Amazon music started offering it for free in their standard plans. The new premium tier will first be offered in non-US markets. The new plan will also grant users expanded audiobooks access, either in form of a specific number of free titles or number of free hours, with the option to buy more. “Supremium” price has not been mentioned. A Spotify spokesperson declined to comment on it.

Subscribers

July 6, 2023: Spotify has notified premium subscribers who still pay through Apple App Store to find an alternative payment method such as PayPal or credit card. According to Spotify, the action will “help ensure that [it] can continue to provide a consistent best-in-class subscription experience for all our users.” The company stopped accepting payment subscription fee through Apple App in 2016 in order to avoid paying Apple up to 30% commission fee for in-app purchases. Premium subscribers who continued using Apple App store to make payment were charged an additional $3 per-month. In 2019, 680,000 Spotify subscribers paid through the Apple App, representing less than 1% of Spotify's 100 million premium subscribers at that time-That's according to Apple regulatory filling.

Employees and Culture

December 4, 2023: Spotify said it will reduce its workforce by about 17% amid the economic growth slowdown. “Economic growth has slowed dramatically and capital has become more expensive. Spotify is not an exception to these realities.” CEO Daniel EK said in a statement. “We debated making smaller reductions throughout 2024 and 2025. Yet, considering the gap between our financial goal state and our current operational costs, I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives.” “Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact,” he pointed out. Assessment: At the end of Q3 2023, Spotify had 9,241 full-time employees. That means a layoff of 17% would mean around 1,570 employees. Based on announced severance payments, previous layoff data, and indications that more junior roles are affected, we estimate that this reduction would probably lead to cost-savings of around 250-300 Million in our slightly conservative base scenario. We feel confident that cost savings are at least 200 million and would not substantially be higher than 350 million.

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