The audio streaming service now has 205 million paying users, but it’s still losing money and and it’s banking that diversifying audio formats will change that
Spotify’s podcasting business has generated endless bad press for the Swedish music streamer: the Joe Rogan controversy, layoffs and cutbacks at its studios and the departure of a key executive. But its latest earnings report flipped the script, with CEO Daniel Ek crediting podcasts with retaining paying customers and helping steer the money-losing company on a path to profit.
The company presented its podcasting business as flourishing in a presentation Accompanying the earnings release, noting that podcasts drove a 14% increase in advertising revenue. Podcasts, Ek told analysts on a call Tuesday, increased retention: “And as that happening, it is impacting our business.”
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Retention is key in Spotify’s churn-heavy business, with companies racing to replace subscribers who drop the service with new ones. Ek acknowledged that the company’s push into podcasts had “been a drag on the gross margin side” but he and other executives said they expected profitability in podcasting to improve in 2023.
Although Spotify seemed to dial back its podcasting ambitions last year, canceling 11 podcasts and laying off almost 40 people, Ek and his team pointed to an increasing reliance on podcasts and related audio businesses, like audiobooks, for growth, versus its core music offering, which faces competition from Amazon, Apple and Google’s YouTube.
“Spotify is already so many people’s first choice for music, and if podcasting is positioned correctly within the app, it can turn many non-podcast listeners into loyal podcast listeners,” said Arielle Nissenblatt, founder of EarBuds Podcast Collective, the producer of a newsletter and podcast about the audio content industry. “Even niche podcasts can draw in advertisers.”
The company’s shares rose 12% Tuesday as it delivered earnings that outperformed analysts’ expectations, with the audio streamer growing to 205 million paying subscribers and vowing to Wall Street that its margins would improve.
The company had 489 million active monthly users as of the end of the year, a jump of 33 million people or 20% from 2021. It reported 205 million paid subscribers, an increase of 14% year-over-year. It brought in $3.4 billion for the fourth quarter, slightly beating the consensus of analysts surveyed by Refinitiv. It lost $251 million or $1.52 per share on an operating basis, versus the $1.38 loss per share expected by analysts.
On Jan. 23, Spotify announced it would lay off about 600 employees or 6% of its global workforce. Fearing a pull-back in advertising amid anticipation of a recession, Ek wrote in a companywide note that “in hindsight, I was too ambitious in investing ahead of our revenue growth.” In the Tuesday call, he said the emphasis now was on “efficiency” rather than growth.
In addition to the playoffs announced Jan. 23, Spotify announced Dawn Ostroff, a “a key architect of Spotify’s podcast strategy,” according to the Los Angeles Times, would depart. She served as Spotify’s chief content officer and advertising business officer.
On Ostroff’s watch, the firm invested heavily into ad-driven audio, buying up production companies and closing exclusive podcasting deals with celebrities and prominent figures, ranging from the “Joe Rogan Experience” to hip-hop luminaries like Nasir “Nas” Jones, who hosts “The Bridge” podcast. In 2021, Spotify opened an LA office known locally as “Pod City” to house podcasting studios.
Though the Rogan deal has helped Spotify win over advertisers and reduce its dependency on music licensing, other celebrity contracts have seemed troubled. A $25 million, multiyear deal with Prince Harry and Meghan Markle produced only a handful of episodes of “Archetypes” last year, with none released since november.
