Spotify announced its latest financial results yesterday, with growth in listeners and subscribers at the top end of its forecasts, despite the Covid-19 pandemic. CEO Daniel Ek talked to Music Ally after the financials were announced, starting with his view on the growth.
“It’s very encouraging. Already last earnings call we were seeing a lot of the numbers stabilising and it was looking very promising, so it’s nice to see that stability and to see more and more regions get back to normal again, with a continuing trend from Q1,” said Ek.
One of the lines that jumped out of Spotify’s Q2 earnings announcement was “Gone are the days of Top 40, it’s now the Top 43,000” – referring to the fact that the streaming service’s ‘top tier’ of artists – those accounting for the top 10% of its streams – now number more than 43,000, compared to 30,000 a year ago.
What does that mean in the big scheme of things? “The real thing is that there are more relationships being formed to more artists,” said Ek.
“This is something that’s been near and dear to us for some time: it’s in our company mission to enable more artists to live off their art, and it’s really coming through in the numbers. More and more artists are breaking through in a big way, being impactful and creating new fan relationships.”
He suggested that compared to 10-15 years ago “the average consumer has way more diverse tastes: through the various genres, and they know of a lot more artists”.
That company mission was originally expressed by Ek at Spotify’s investors day in March 2018, ahead of going public, when he talked about “helping one million artists to be able to live off their art”.
However, in 2020 more than any other year since Spotify launched, there’s been a surge of musicians talking publicly about their streaming royalties not being enough to live on – including a campaign in the UK (#BrokenRecord) that has trained its sights not just on streaming services, but on labels and the wider industry structures.
Labels and streaming services have been pretty quiet amid this debate, so we put the question to Ek: why is there this gap between Spotify’s stated ambitions, and the experiences of the musicians who have been speaking out? And what’s needed to bridge that gap?
“There are two different trends here worth picking apart. We realise that a lot of artists are impacted in the short term by Covid and the impact it has on the live industry. As you very well know, a lot of the income today that artists are getting [pre-Covid-19] is from touring and live performances. A lot of artists are struggling because of that,” said Ek.
“As a music fan, I’m hopeful and keeping my fingers crossed that we can go back to going to live shows again. That will be super meaningful.”
Critics of streaming would agree that Covid-19 has had a grim impact on the incomes of many musicians who’d been reliant on live revenues (and everything associated with them: merch etc) before the pandemic struck. However, some of their criticism has focused on the question of why it had become accepted that recorded music – streaming specifically – would be such a low portion of many musicians’ revenues.
(Our recent interview with David Lowery and Zöe Keating voiced this. “We’re now looking at what the actual recorded music generates, and perhaps we can get back to a healthier, more sustainable system,” said Lowery.)
Ek has some criticism of his own, which may ruffle some feathers it’s fair to say.
“It’s quite interesting that while the overall pie is growing, and more and more people can partake in that pie, we tend to focus on a very limited set of artists,” he said, referring to the reporting of views on streaming royalties.
“Even today on our marketplace, there’s literally millions and millions of artists. What tends to be reported are the people that are unhappy, but we very rarely see anyone who’s talking about… In the entire existence [of Spotify] I don’t think I’ve ever seen a single artist saying ‘I’m happy with all the money I’m getting from streaming,” he continued.
“Stating that publicly. In private they have done that many times, but in public they have no incentive to do it. But unequivocally, from the data, there are more and more artists that are able to live off streaming income in itself.”
“There is a narrative fallacy here, combined with the fact that, obviously, some artists that used to do well in the past may not do well in this future landscape, where you can’t record music once every three to four years and think that’s going to be enough,” said Ek
“The artists today that are making it realise that it’s about creating a continuous engagement with their fans. It is about putting the work in, about the storytelling around the album, and about keeping a continuous dialogue with your fans.”
Ek cited Taylor Swift’s activity around her new album ‘Folklore’ as just one recent example of an artist benefitting from that kind of effort.
“I feel, really, that the ones that aren’t doing well in streaming are predominantly people who want to release music the way it used to be released,” he said, as the interview ended.
Earlier during the conversation, we also asked Ek about podcasts, and specifically about their role in the startling growth in Spotify’s market cap (value) this year: from around $29bn at the start of 2020 to $50bn now, including noticeable spikes accompanying some of its big podcast announcements.
What’s going on here, for investors? “I can’t really speak to why other people are valuing Spotify in the way that they are,” said Ek, before venturing an opinion.
“If I made a guess, we’ve been talking about this audio-first strategy for quite some time, and now people have started understanding what we actually meant by that strategy… and understanding that not only are we talking about the music business, we’re going after all of radio, which is obviously a much bigger addressable market.”
There has been some unease within the music industry as it watches Spotify’s strategy playing out, including references by some major label executives to the need to ‘ring fence’ their royalties from Spotify, rather than see them potentially cannibalised by podcasts. Are those the kinds of negotiations going on?
“I can’t really talk about the specifics around that. We renewed the Universal Music deal, and I’m pretty sure they wouldn’t have renewed that deal if they didn’t feel comfortable about where this was heading, and being happy about the economics they receive from Spotify,” said Ek.
Chief financial officer Paul Vogel weighed in to point out that Spotify keeps 100% of podcast advertising revenues on its platform – labels don’t get a slice of those anyway.
But as podcast listening grows on Spotify (it’s up to 21% of the company’s listeners now) there may be more debate to come about the extent to which Spotify’s subscription revenues are driven not just by music, but by podcasts too – and whether that has implications for the share of those revenues paid out to the music industry.
Other journalists also interviewed Daniel Ek yesterday, in between Spotify’s financials announcement and its earnings call with analysts.
Variety’s is worth a read, for the part digging into what the Universal Music deal means in terms of making UMG “early adopters” of Spotify’s new marketing tools.
“They’re really leaning in and they want to be the first to test more of these products and experiment with us and be very clear about what their threshold is for deeming something a success, or [whether it] needs to be improved,” said Ek. “This is a great learning experience and we’re obviously going to take that learning and extrapolate from the rest of the marketplace, including all the other labels and the independents as well.”
As for the earnings call (a transcription of which is here on Seeking Alpha) there are some extra takeaways from that too:
– Taylor Swift’s ‘Folklore’ helped her notch up the biggest single day of streams on Spotify this year so far: 98m.
– More on that UMG deal, its access to new tools early, and the difference to deals with other labels: “The big difference here is really Universal’s willingness to experiment and go all-in on marketplace,” said Ek. “Universal has seen the early success and is very excited by it. And they want to make sure that they can get behind and experiment a lot more with the paid tools of the marketplace, but also the organic tools that allows artists to create more fans, engage with those fans and monetise those fans better.”
– On whether the UMG deal includes a ‘carve out’ for podcasts listening time on the premium tier. “I think what we have said is that, from a podcasting perspective, the advertising related to podcasting will be a 100% Spotify’s and not shared. Beyond that, I am not sure we have commented much on any other terms of the deal,” said Ek.