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Ad agencies gave Spotify a GDPR headache, but it's now 'over the speed bump'

Spotify doesn't see GDPR as having a long-term impact on either user growth or ad sales, saying over the past three months the implementation of the EU law has made a dent in revenues to equivalent to less than one million Euros.

"GDPR was an issue for a couple of weeks [after it became law] and then we were past that speed bump," the firm's chief finance officer Barry McCarthy told investors during Spotify's Q2 earnings call on Thursday (26 July).

McCarthy put a pin in the suggestion that the new data protection rules, which cover everything from portability to consent, had been responsible for sluggish user growth on the ad-supported side of the business.

Numbers at a glance

  • Revenue: $1.49bn, up 30% YOY
  • Total monthly subscribers: 180m, up 40% YOY
  • Premium subscribers: 83m up 30% YOY
  • Ad-supported subcribers: 101m, up 23% YOY
  • ​Average revenue per user: $5.83, down 12% YOY

"If it had an impact on revenue in the quarter it was less than a million Euros, so quite small in the grand scheme of things," he added.

McCarthy then explained during a call with media that the main challenge Spotify faced as a result of GDPR was advertising, media and adtech agencies trying to use the regulatory changes to try and negotiate for "a broader set of information sharing rights" which Spotify wasn't willing to hand over.

"When it became clear we weren't going to soften our position, we were able to move on and get back to the business of booking revenue," he said. "So it was kind of a short-term hiccup."

He told investors that not everybody in the marketplace had been equally prepared for GDPR compliance and this called some fallout.

"Then were examples of some advertisers who sought to use GDPR as an opportunity to leverage the renegotiation of data sharing in the marketplace, but that friction cleared the market in a couple of weeks - so relatively quickly," he continued.

Speaking to The Drum back in June Spotify's head of programmatic for Europe, Zuzanna Gierlinska, said the business hadn't been badly rocked by GDPR because it was already in the enviable position of having most of the tenets embedded into its model.

"It would be remiss if I didn’t say it was a bit of a circus in the first couple of weeks, even big global brands like Google were making very last minute decisions and changes, everybody was scrambing around.

"However, we were very lucky in the sense our business models is completely set up [to require consent] anyway. Though, I think where it is impactful is for publishers don’t have a registration base or a logged in base, and now they're having to seek consent. It's just going to take them time to build up their consent pools and cookie pools again," she said.

Despite the post-GDPR relief, Spotify's second results update as a publicly traded company offered mixed results.

The music streaming platform generated revenues of $1.49bn in Q2, up 26.4% year-on-year, but losses increased to $461.4m compared to a net loss of $219m for the corresponding quarter in 2017.

The company ended June with 83 million monthly paying subscribers to its Premium ad-free service up from 75 million in the first three months of the year.

However, growth slowed on the ad-supported side with 101 million monthly users signing up against Q1's 102 million – although, still marked an increase of 23% year-on-year.

McCarthy said sluggish growth on the ad-funded side would really only be a concern if it interfered with performance in future quarters.

Spotify's average revenue per user also declined 12% year year-on-year to $5.83 in the second quarter.

Spotify has a big focus on people-based marketing, and recently expanded its self-serve platform for advertisers from the US to Canada and the UK.