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Podcast Ambitions Weigh on Spotify Revenue

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Spotify’s strong investments in the podcast space helped draw more free and paid subscribers to the service, but it wasn’t enough to offset Spotify’s financial losses.

On Tuesday, Spotify said it grew its global monthly active user base to 489 million customers during the three-month period ending December 31, a year-over-year increase of 20%. Paid subscribers grew 14% compared to the previous year, with Spotify recording 205 million paying customers. The net additions to Spotify outpaced Wall Street estimates for paid subscribers by about 3 million.

During a conference call with investors and reporters on Tuesday, Spotify CEO Daniel Ek said the service ended 2022 with more than 100 million audio tracks, 5 million podcasts and over 300,000 audiobooks available to customers. But he also acknowledged that Spotify’s investments in on-demand audio may have been overly-ambitious, given the company reported a loss of $231 million for 2022, up from a loss of $228 million reported during the previous year.

“In 2021, we said that 2022 would be an investment year, and it was,” Ek affirmed on Tuesday. “And in light of our recent news on cost and staff reductions, I’m sure some of you are wondering if we believe that, that investment was a mistake. And the answer is, no and yes. I still believe it was the right call to invest, and I would do it again.”

Those calls included onboarding Joe Rogan and his podcast, making the show quasi-exclusive to Spotify; forging content production deals with celebrities like Kim Kardashian and former President Barack Obama; and acquiring various audio-related tech firms, including Podsights and Chartable.

“My expectation was never that these investments would have a great impact in the short term, yet they have,” Ek said. “But more importantly, for our share owners, I fully expect that they will continue to pay dividends in the months and years to come. But things change, and the macro environment has changed significantly in the last year. And in hindsight, I probably got a little carried away and overinvested relative to the uncertainty we saw shaping up in the market.”

Earlier this month, Spotify announced it would lay off 600 workers, reducing its global workforce by about 6%. The move was connected to a broader restructuring of its business, one that saw the departure of Dawn Ostroff, the company’s chief content officer.

At the time of the announcement, Ek said the investments were based on an expectation that Spotify would be able to weather economic hardships brought on by the global coronavirus pandemic. After all, more people were stuck at home, unable to work, and had nothing but time on their hands — so why wouldn’t they stream music, listen to podcasts and buy the occasional audiobook?

What ultimately hit Spotify was a downturn in the advertising market, with buyers pulling back on spending amid future economic uncertainty.

“I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us,” Ek said two weeks ago. “In hindsight, I was too ambitious in investing ahead of our revenue growth.”

Now, Spotify is focused on channeling its energy into “becoming more efficient,” which means “tightening our spending,” Ek vowed on Tuesday.

“This doesn’t mean we’re changing our strategy,” the CEO said. “We will continue to work to build the platform of the future, and that will take investment in new opportunities that we outlined like podcasts and audio books. And if anything, thanks to our position in users and subs, this should allow us to both increase revenue per user over time as well as improve our stickiness with consumers even more.”

That doesn’t mean Spotify will simply throw cash around to become the biggest platform of on-demand audio on the market. Instead, the company will concentrate its efforts on securing rights to content that either already has an audience, or has a good chance of developing one.

Ek also didn’t rule out price increases at Spotify — it has managed to stick to the $10 a month price point for its premium tier, even after Amazon Music and Apple Music raised their prices — but said the company needed to focus on growing its audience base, which effectively rules out raising prices on subscribers in the near future.

“Our approach when we’re early in a market is to try to grow the number of participants on the platform,” Ek said. “And the usual way to do that is not to try to increase prices too early, but keep a competitive price that attracts the most amount of users onto the platform. And then as the market matures, then obviously, it will shift more so that most of the revenue growth comes from price increases.”

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