Just Wait For It, Going To Be Great

Michael Hedges June 13, 2022 Follow on Twitter

Every enterprise of a certain size holds regular investor events. New York is a common location because, as Willie Sutton once said “that’s where the money is.” Streaming platform Spotify held theirs last week (June 8) after a four year absence from that scene. There was the expected meeting, greeting and exciting new announcements. Co-founder and chief executive Daniel Ek said the company would have a billion users by 2030.

Nobody fainted. Audacity is quite normal for tech entrepreneurs. After all, Elon Musk is today’s role model. “From everything I see,” said Mr. Ek jumping back into the stream following a very long, detailed presentation from Chief Freemium Business Officer Alex Norström, “I believe that over the next decade we will be a company that can generate US$100 billion in revenue annually. And that we can achieve a 40% gross margin, and a 20% operating margin.”

Since its 2008 launch in Sweden, Spotify has had a thunderously successful ride, largely in keeping with being at the right place in the right time with the right product. Investors have tossed several US$ billion at the project, most of which has been spent on development. Its “freemium” model - premium subscriptions plus advertising - has built a wall of 422 million monthly average users (MAU) (March 2022) in 183 countries and territories. It has a slew of competitors, not least of which is Apple Music. Available on all the obvious digital platforms, its growth is directly related to mobile phone penetration.

Built on being a platform for music fans, to the detriment of radio broadcasters, Spotify has been reaching into podcasts. Other streaming platforms have done the same since podcasts became cool on mobile phones. Sarah Koenig’s “Serial” became a US hit in 2014 and brought podcasts into the mainstream. Originally co-produced by Chicago Public Media it is now part of the New York Times Company, illustrating where podcasts have gone. Podcasts are also popular with media buyers.

Spotify has acquired several specialty podcast producers, analytics providers and acquired exclusive rights to individual podcasts. Music streaming was easier, admitted Mr. Ek at Investor Day. The podcast business required “a lot more heavy lifting.” Last year Spotify’s podcast business yielded a negative gross margin of US$103 million due to acquisitions and rights, reported Hollywood Reporter (June 8). Taking on the right-wing Joe Rogan podcast cost, reportedly, US$100 million and brought in ruthlessly negative publicity. Plus, media buyers wanted nothing to do with it.

So now, Spotify is exploring the world of audiobooks, not like other audio platforms haven’t been there for years. “And just as we’ve done in podcasting, expect us to play to win,” said Mr. Ek to the investors. Last year an agreement was reached to acquire audiobooks platform Findaway. Alas, the deal hasn’t closed as the US Department of Justice started an anti-trust investigation. Amazon Audible, available since 1995, also distributes podcasts.

The vast majority of Spotify’s strength lies in North America, Europe and Asia/Pacific, meaning Australia. Opportunity abounds, said Mr. Norström, in the Global South, including India. The company is also looking at “exclusive live premium events” with blockbuster artists. The company’s share price bumped up 6% after the investor presentation then reversed for another loss as reality seeped in.

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