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Spotify’s Daniel Ek talks churn, fan funding and why Covid-19 ‘might be a much better time to release music’


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The Covid-19 pandemic is leading some labels to postpone big album releases, especially those for which tours were a big part of the marketing plans.

Some big artists, like Dua Lipa and The Weeknd, have put out their albums as planned. Spotify CEO Daniel Ek thinks they may offer encouragement to other artists and labels mulling their release strategies.

“The Weeknd and Dua Lipa had record numbers. I think some people in the music industry falsely assumed this would be a bad time to release music. I think this might be a much better time to release music,” he told Music Ally, in an interview following Spotify’s announcement of its latest financial results this morning.

Those financials revealed continued growth for Spotify’s listeners, subscribers and revenues, despite the impact of Covid-19, which the company admitted had a “minor impact” in terms of ‘churn’ – subscription cancellations and payment failures – towards the end of Q1.

If the pandemic is forcing people to revise their household budgets and possibly cancel some of their entertainment subscriptions, how will Ek and his team make Spotify as churn-resistant as possible in Q2 and beyond?

“The metric we use a lot is the value to price ratio. We have over one hour of engagement per day per user. That’s pretty remarkable: the amount of value you’re getting for $10 or £10 per month, compared to many of the other services where consumers are spending a lot less time,” he said.

“We believe this category is holding up pretty well, and seeing very, very little impact on churn, despite the [Covid-19] uncertainties.”

In one sense, Spotify might be at greater risk of churn. If people cancel Netflix, they don’t have Netflix any more. If they cancel Spotify Premium, they still have Spotify in its ad-supported version.

Another way of looking at that, as outlined in Spotify’s letter to shareholders this morning, is that those people will still be using Spotify – and thus might be easier to tempt back to a subscription in the future than if they’d left the platform altogether.

According to the letter, around one in six people responding to Spotify’s exit survey – which people can fill in when they cancel their subscription – cited Covid-19 as a reason. But 80% of them “indicated that they are extremely likely or likely to renew once the economic situation improves”.

Ek suggested to Music Ally that Spotify’s freemium model could thus “be an even bigger strategic advantage” in the months ahead, although he also re-stressed the uncertainty of these times, in terms of making predictions.

Also in today’s filing was the news that more than 50,000 artists have so far added Spotify’s new ‘Artist Fundraising Pick’ to their profiles on the service. It enables them to raise money from fans either for themselves and their teams – via three fundraising/payment platforms chosen by Spotify – or for the charities that are part of its Covid-19 Music Relief Project.

How permanent is this feature? Will it live on beyond the current crisis, or will Spotify remove it once the economic situation is deemed to have improved enough?

“We were pretty much just reacting. Trying to as quickly as possible scramble to help out the broader music ecosystem,” said Ek, citing the launch of the relief fund as the other part of that scramble.

“That’s been our primary concern, and we’re overwhelmed with all the positive response from artists. We’ll take that into our future decisions [about the permanence of the fundraising pick feature].”

Could this be a first step towards a bigger, deeper integration of direct fan funding into Spotify? In the west, crowdfunding, tips economies and other fan-funding mechanics have traditionally been completely separate from the major music streaming services.

Spotify enables artists to sell merchandise and tickets from their profiles – via partnerships with companies in those sectors – and now it has the Artist Fundraising Picks. Is there any reason why full-blown fan funding couldn’t be a bigger part of streaming in general, and Spotify in particular?

“I definitely don’t think so,” said Ek – as in, he doesn’t think there’s any reason why it couldn’t be.

“When you imagine streaming, it’s been pretty much a one-size-fits-all [thing] around consumption. But Spotify’s goal – a big part of our marketplace strategy – is to make more meaningful connections between fans and creators,” he continued.

“You can imagine that things like this [the Artist Fundraising Pick] could be a big part of that.”

Here are some extra thoughts from Music Ally on that, as we mulled it after the interview. Until now Spotify’s two-sided marketplace strategy has been talked about mainly in terms of labels and artist teams spending money to market their music on Spotify.

After the interview, though, we found it interesting that a couple of analysts submitted questions during Spotify’s earnings call – while logged in, you can see some of the questions bubbling up in the moderation tool used by Spotify – about the longer-term chances of direct artist funding (from fans) on the platform.

If analysts see potential in such a feature – and let’s not kid ourselves here, they are thinking about the potential for Spotify’s bottom line and its returns for investors rather than an altruistic concern for musicians – perhaps it’s more likely to happen, on the grounds of ticking both the ‘Wall Street approval’ and ‘artist friendly’ boxes for Spotify.

We’d love to see some modelling around the impact a properly thought-out fan-funding / tips economy tier could have, in terms of how many artists might use it; how many fans might stump up and how much they might pay; and what even a Bandcamp-style 10% cut might mean for Spotify’s revenues…

Stuart Dredge

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