Spotify’s mantra for radio vs on-demand streaming: ‘Everything linear dies’


Spotify CEO Daniel Ek and CFO Paul Vogel have been fielding questions from analysts following the company’s publication of its Q1 2020 financial results earlier today, and their interview with Music Ally shortly afterwards.

There were not many surprises, but Ek’s desire to (as he described it several times) “uplevel” the conversation around Spotify and what its competition is was the major standout.

“Both short and long term, we are always thinking about Spotify’s role within the larger ecosystem. While most [external] focus is on competition between streaming services, we continue to be focused on the billions of users who are listening to linear radio,” said Ek.

Multiple times during the call he came back to the notion that the big audio trend of the next 20 years is a move from “linear to on-demand” – which in the music world, is mainly about radio to streaming. At one point he even said “everything linear dies”.

It’s not a new line for the company: we first heard it from former CEO Barry McCarthy back in September 2018: “The 20-year trend here is linear dies, everything on-demand wins.”

What’s notable today is firstly how often Ek repeated variations on the line during the earnings call – he’s clearly keen to hammer the point home to investors and analysts – but also his belief that “the trendline of moving from linear to on-demand will likely be accelerated by the Covid-19 crisis”. In fact, he made this specific prediction three times during the call.

Other points that stood out to us from the call:

– Another claim that Ek repeated was that Spotify grew faster in all four of its regions in Q1 2020 than in Q1 2019. There are different ways to measure this growth: quarter-on-quarter or year-on-year? Percentage growth or absolute number of listeners? What was clear, though, is that Spotify is aware of industry chatter about when or whether it might hit a ceiling for growth in its mature markets, and is keen to dampen it down.

– Spotify’s freemium model could be seen as a disadvantage during hard economic times, because if people unsubscribe they can listen for free still, possibly making it one of the easier digital subscriptions to drop. Ek argued that it’s an advantage, describing Spotify’s free tier as a “bridge” in difficult financial periods. “We have seen an increase in lapsed users coming back to the service [in recent weeks],” he said. “One could speculate and guess that those may have been with competing services, but in light of the economic crisis are coming back to our freemium offering.” He stressed that there’s no concrete evidence to cite yet. Earlier in the call, though, he maintained: “The majority of our competitors do not have a free tier, and that makes us more appealing.”

Ek didn’t bite on a couple of questions angling for details of Spotify’s renewed licensing deal with Warner Music Group – one on how it factored in Spotify’s growth in podcasts (given labels’ rumblings in the past year about ring-fencing music royalties in response) and another on whether it’s longer than the usual two-year deal. All he said was that “the focus for these renewals was really about establishing the [two-sided] marketplace, and establishing podcasts and the shift from music to audio”.

– Talking of that marketplace, Spotify is hoping that its paid marketing tools for labels and artist teams won’t be hit badly by Covid-19. Ek noted that while a number of new releases have been postponed from Q1, he hopes that it will mean a glut in Q2 and Q3, with “the ROI on our marketplace products much better than other mediums that labels can market in”.

– Also newsworthy, possibly: Spotify’s marketing tools may not be restricted to its own platform. “We’re experimenting with various tools based on what our customers are telling us, i.e. labels and artist teams. And you may see off-platform tools too,” said Ek. This was in response to an analyst’s question about whether, in the light of artists using services like TikTok, YouTube and Instagram, Spotify might launch some off-platform marketing tools. However, Ek added that on-platform (i.e. marketing tools to be used on Spotify itself) remain the main focus.

– There was a bit on how Covid-19 and stay-at-home restrictions are affecting Spotify listeners’ habits. Car usage is down and home usage is up; there’s been growth in instrumental / classical / chill music and possibly a bit of a skew away from frontline releases and towards catalogue – but that might be because of the pulled releases in Q1. “We should see a lot more new music come out in Q2 and Q2,” said Ek.

– Livestreaming video isn’t on Spotify’s to-do list, despite artists flocking to platforms that help them reach fans through live video. “The macro trend here isn’t really live. The big macro trend is linear to on-demand,” said Ek. “Of course, live is a component of that, but it’s a relatively small component.” He also batted away a question about Spotify doing more with video generally. “We continue to see video be important in terms of a complement, but… we believe video is something a lot of the players in the marketplace are focused on. Audio has about the same amount of engagement that video has, yet no one on a global scale is focused on audio. We think that’s a massive opportunity to go after. To the extent that video will play a complementary role to audio we will probably pursue it over time, but we are really focused on audio.”

– The music industry debate about whether Spotify should put its prices up continues. We think there’s been a small but noticeable shift in tone in the way Ek addresses questions on it: less of a firm ‘no’, and more of a ‘not right now, but maybe later’ standpoint. “Our primary strategy is growth rather than maximising revenue. That’s due to the fact that we see this amazing opportunity of moving from radio to on-demand audio… that’s what you’re seeing us go after,” he said today. And yet Ek also mentioned the “small pricing experiments” and inflation-driven rises Spotify has tried in some markets. “The response from those have been very positive, but it’s not something that we’re focusing on in the short-term. But it’s definitely encouraging to see we have that opportunity for when the economy improves, and [when] we feel that’s the right trade-off to make.”

Written by: Stuart Dredge